Maine-based Wintergreen Advisers, headed by veteran value manager and Guru David Winters, runs a Mutual Fund that has the flexibility of operating like a Hedge Fund. 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 $570 million invested in U.S. equities, and total assets of $1.5 billion including international equities. The fund has generated 4.75% annualized return or 44% cumulative in the last five years versus (10)% cumulative for the S&P 500 (NYSEARCA:SPY) during the same period. He is also well-known as a value investor and widely considered a Guru, and in December 2006, he was selected as one of four participants at the Tenth Global Value Investing Round Table by the International Herald Tribune.
The fund holds a concentrated portfolio of only 15 positions accounting for the $570 million invested in U.S. equities, about 90% of that in large caps and most of the remaining 10% in small caps. The portfolio turnover is between 15%-25%, implying an average holding period of four to six years. Based on the most recent SEC 13-F filing for the September 2011 quarter, we determined that its portfolio is over-weight in the financial (32%) and consumer (31%) sectors, and it is under-weight in technology (7%), energy (16%) and services (4%) sectors, compared with the weighting of these sectors in the overall economy.
The following are the high conviction buys:
Philip Morris International Inc. (NYSE:PM): 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 Wintergreen adding a significant $17 million to its $50 prior quarter position in MO in the mid-$20s is indicative of its high conviction in the position.
Reynolds American Inc. (NYSE:RAI): 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 and then rising recently to almost $40, so Wintergreen adding $10 million to its $49 million prior quarter position in the high-$30s is indicative of the conviction in the position.
Coca Cola Co. (NYSE:KO): KO manufactures non-alcoholic beverage concentrates and syrups sold to bottlers and fountain wholesalers. This position too was initiated at the end of 2006, in the high-$40s, so Wintergreen adding $9 million in Q3 to its $23 million prior quarter position in the mid-$60s is indicative of its conviction in this buy.
Canadian Natural Resources Ltd. (NYSE:CNQ): CNQ is engaged in oil and gas exploration and production in western Canada, the North Sea and offshore West Africa. This is its 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 tripled since the $13 lows in early 2009, so Wintergreen adding $7 million in Q3 to its $84 million prior quarter position in the mid-$30s is indicative of the conviction in this buy.
Mastercard Inc. CLA (NYSE:MA): MA provides global payment solutions in support of the credit and debit payment programs of 23,000 financial institutions. This position was initiated in Q2 this year in the $260-$300, so Wintergreen adding $5 million to its $53 million prior quarter position in the $300-$350 range is indicative of its conviction in this buy.
The following are the high conviction sells:
General Dynamics Corp. (NYSE:GD): GD provides business aviation, combat vehicles, weapons systems and munitions, military and commercial shipbuilding, and communications and information technology products and services worldwide. Wintergreen initiated this position in Q1 of 2007 in the $80s, so selling out of it completely at a huge loss in the $60s last quarter is indicative of its conviction in the sell decision.
Goldman Sachs Group Inc. (NYSE:GS): GS is the world’s leading investment bank. It provides investment banking, securities and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. The position was initiated in Q3 of 2008 in the $150 range, so Wintergreen selling out of it completely in the $100-$120 range last quarter at a loss is indicative of its conviction in the sell decision.
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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.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.