Marathon Value, a Top-Performing Fund, Breakfasts with Registered Rep.
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During the rough markets of the past decade, Marathon Value Fund (MVFPX) stayed afloat. The fund made money in the downturn of 2001. When stocks cratered in 2008, Marathon outpaced the S&P 500 by 13 percentage points. By limiting losses, the fund returned 6 percent annually during the ten years through April 13, outdoing 97 percent of its large blend competitors.
The steady record is no accident. Portfolio manager Marc Heilweil, who recently sat down with me for breakfast, focuses on controlling risk. Heilweil favors stocks with reliable earnings and typically keeps 12 percent of assets in cash. As a result, the portfolio has a beta of 0.75, suggesting that the fund should lose less than the market during downturns.
Heilweil began developing his strategy during the sluggish markets of the late 1970s. At the time, he managed money for individuals and favored deep-value stocks, troubled businesses selling at big discounts. The approach worked well for several years, but then it proved erratic, recording periods of steep gains followed by times of big losses.
Heilweil became convinced that he could do better by holding steady companies. The idea was to pick reliable performers when they were out of favor—and then hold them for years.
By avoiding big losses, the steady stocks helped to calm the nerves of clients, enabling them to hold for the long term. In contrast, deep-value stocks could suffer sharp drops that would cause investors to panic. “When people get scared, they sell at the wrong time,” Heilweil says.
He says that his portfolio is more solid than usual these days. During the market downturn, many high-quality stocks collapsed along with shakier issues. So Heilweil was able to buy stocks that had been too expensive for his tastes. For years he coveted Emerson Electric, a maker of motors and industrial automation, that had long ranked as a steady growth stock. He grabbed the shares after they tanked. He also bought 3M, the rock-solid conglomerate.
Such blue chips are no longer cheap, says Heilweil. But he plans to hold them indefinitely. “As these companies keep growing, the valuations will not seem excessive,” he says.
Heilweil often buys companies that have recurrent revenues or dominant franchises. A holding is Tyco International, a maker of security systems, among other things. The shares remain cheap because investors remember scandals that plagued the company earlier in the decade, says Heilweil. But he says that the security business is reliable because the company is paid to service and maintain its systems. “This is an annuity-type business,” he says.
To find steady franchises, Heilweil sometimes looks overseas. A recent purchase is SK Telecom, the dominant Korean cellular company. With demand for cellular service growing throughout Asia, the company should deliver the kind of reliable growth that Heilweil seeks.
