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Summary: Mutual Fund Guru David Winters' Hedge Fund-like Mutual Fund with $1.5 billion in assets, rated Five Stars by Morningstar, and ranked in the top sixth percentile in its category, has returned 44% cumulative over the last five years versus 11% for the S&P 500. His best new conviction buys include Barrick Gold Corporation (NYSE:ABX), Norfolk Southern Corp. (NYSE:NSC) and Mastercard Inc. CLA (NYSE:MA).

If you are looking for a Mutual Fund that has the flexibility of operating like a Hedge Fund, consider Maine-based Wintergreen Fund run by veteran value manager David Winters. Its charter gives Winters the freedom to sell stocks short, invest in bonds, convertible securities and distressed securities, participate in private equity deals, hedge his exposure to foreign currencies, and to engage in merger arbitrage.
Once asked famously why he opted to run a comparatively heavily regulated Mutual Fund versus a higher fee hedge fund, he replied in his characteristic nice guy manner, “Mutual fund is a truly democratic way. You can invest your friend’s money. It is nice to be able to do a nice job for people who need the money.”
Winters is a 25-year veteran in the Mutual Fund industry, having joined Mutual Series in 1987 during Max Heine’s tenure, and then subsequently mentored in value investing by Michael Price. While at Mutual Series, he managed the Mutual Discovery Fund where he generated 10% annualized returns in his five years at the helm between 2000 and 2005 versus negative returns for the market during the same period.
In October 2005, he founded the Wintergreen Fund that currently has $550 million invested in equities. The fund has generated 7.60% annualized return or 44% cumulative in the last five years, versus 2.17% annualized or 11% cumulative for the S&P 500, ranking it in the sixth percentile in its category. He is also well-known as a value investor and widely considered a Guru. In December 2006, he was selected as one of four participants at the Tenth Global Value Investing Round Table by the International Herald Tribune.
Run like a hedge fund, the fund is unusual in the mutual fund world in that its $550 million in equity assets are concentrated in only 20 equity investments, with over 90% being large-caps and about 10% small-cap equities. The portfolio turnover is 10-15%, implying an average holding period approaching six to eight years. Based on the most recent SEC 13-F filing for the March 2011 quarter, we determined that their portfolio is overweight the Consumer, Basic Materials, Financial and Industrial Sectors, and it is underweight Healthcare, Technology, Energy, Transportation and Services Sectors.

The following summarizes their new picks and pans in the latest reported 13-F filing for the March 2011 quarter, and updated based on any 13-G filings since the end of the quarter:
  • Barrick Gold Corporation (ABX) is a Canadian Company engaged in production of gold and copper in Peru, Canada, U.S., Australia, Chile and five other countries. The position is one of their largest, and it was initiated in the fall of 2010 probably in the $50s. They indicated their conviction in this position by accumulating $17 million more at similar prices in the March 2011 quarter and making it their fourth largest position.
  • Leucadia National Corp. (NYSE:LUK) is engaged in manufacturing, land-based contract oil and gas drilling, gaming entertainment and real estate activities. The position was initiated in winter 2007 probably in the high-$20s. Their sell-out of it in the mid-$30s in the current quarter does not have much conviction, as it came after a period of high volatility that saw prices drop from $56 high in spring of 2008 to $10 levels in early 2009 and then almost a four-fold move to the high-$30s recently.
  • Norfolk Southern Corp. (NSC) operates, through Norfolk Southern Railway, a 20,000-mile railroad in 22 states and the District of Columbia. This is a significant new position initiated in the current quarter.
  • Mastercard Inc. CLA (MA) provides global payment solutions in support of the credit and debit payment programs of 23,000 financial institutions. This is also a significant initial position initiated in the current quarter.
  • Google Inc. (NASDAQ:GOOG) provides online search, internet content services, and web-based and desktop software applications via Google.com. This is a small $4 million position initiated in the quarter and will need to be confirmed in future quarters for it to have more conviction.
  • Activision Blizzard Inc. (NASDAQ:ATVI) publishes interactive entertainment software and peripheral products for consoles, hand-held devices and PCs. This position was initiated at the end of 2010, probably in the low-teens. They have been wrong since as the stock has continued being weak, so their accumulating another small $4 million at slightly lower prices has little conviction.
  • Canadian Natural Resources Ltd. (NYSE:CNQ) is engaged in oil and gas exploration and production in western Canada, the North Sea and offshore West Africa. This is their largest position in the portfolio, and it was initiated at the end of 2006 probably in the mid-$20s. The stock has recently been through a period of high volatility and has quadrupled since the $13 lows in early 2009, so keeping their largest position unchanged after such a large up-move is indicative of their high conviction in this position.
  • Berkshire Hathaway CLA (NYSE:BRK.A) engages in insurance, food-service operations, energy distribution, manufactured flooring, finance and apparel. This is their second largest position in the portfolio, and it too was initiated at the end of 2006.
  • Franklin Resources Inc. (NYSE:BEN) provides investment management and fund administration services to investment companies and individual accounts. This position was initiated in the summer of 2008 probably in the $100 range, and it has been very volatile since dropping first to the $30s in early 2009 and then rising recently to the $130s, so them leaving this position unchanged after such a large up-move is indicative of their conviction in this position.
  • Consolidated Tomoka Ltd. (NYSEMKT:CTO) is engaged in the real estate, income properties and golf operations primarily in Volusia County, FL and in GA and NC. At $50 million, this is among their largest positions, and they also hold 26.9% of the company’s outstanding shares indicating their high conviction in the company.
  • Philip Morris International Inc. (NYSE:PM) manufactures cigarettes sold worldwide under the Marlboro, LM, Parliament, Virginia Slims and other brands. This position was initiated at the end of 2009 in the high-teens, so their maintaining it unchanged in the high-$20s after more than a 50% up-move in just over a year is indicative of their high conviction in the position.
  • Reynolds American Inc. (NYSE:RAI) manufactures cigarettes and other tobacco products primarily under the Camel, Doral and Kool brands. This position was initiated at the end of 2006 in the low-$30s and has been volatile since dropping to $15 range during winter of 2009, then rising recently to almost $40. Their leaving this position unchanged after such a huge up-move is indicative of their conviction in the position.

Table


Company
Ticker
Action
Market Value at end of March 2011 Quarter
Change in Value from Prior Quarter
Percent of Portfolio
Percent Shares Owned
Barrick Gold Corp.
ABX
Add
$ 62.91 million
$17 million
10.63%
0.12%
Leucadia National Corp.
LUK
Drop
$ 0 million
($13) million
0.00%
0.00%
Norfolk Southern Corp.
NSC
New
$ 8.62 million
$9 million
1.46%
0.04%
Mastercard Inc.
MA
New
$ 8.18 million
$8 million
1.38%
0.03%
Google Inc.
GOOG
New
$ 4.4 million
$4 million
0.74%
0.00%
Activision Blizzard Inc.
ATVI
Add
$ 15.46 million
$4 million
2.61%
0.12%
Canadian National Resources Ltd.
CNQ
Same
$ 107.26 million
$0 million
18.11%
0.20%
Berkshire Hathaway Inc.
BRKA
Cut
$ 67.14 million
($0) million
11.34%
0.08%
Franklin Resources Inc.
BEN
Same
$ 63.56 million
$0 million
10.73%
0.23%
Consolidated Tomoka Ltd.
CTO
Same
$ 50 million
$0 million
8.44%
26.90%
Philip Morris International Inc.
PM
Same
$ 45.24 million
$0 million
7.64%
0.04%
Reynolds American Inc.
RAI
Same
$ 44.45 million
$0 million
7.51%
0.21%

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: Top Buys and Sells of Guru David Winters' Hedge Fund-Like Mutual Fund