S&P Rank: 2 Stars
July 31, 2003
Down But Not Out
Quick Take: In picking stocks, John McDermott, says he and Timothy Evnin, who have run the Excelsior Mid-Cap Value Fund (UMVEX) for nearly three years, favor the same sort of financial characteristics as other value-oriented managers. That includes attractive valuations and solid returns on equity.
What Your Peers Are Reading
The portfolio managers also aren’t afraid of moving into a company that other investors have been moving out of, provided they think the malady that has weakened its stock is transient.
Buying economically-sensitive companies, like retailers last year, may have weighed on the fund’s performance then, but it has helped since as the economy has perked up, McDermott says.
The fund gained 16.8% this year through June, compared to a 12.8% return by its mid-cap value fund peers. For the five year period ended in June, Excelsior Mid-Cap Value rose an average annualized 9.1%, versus 4.7% for its peers.
The Full Interview:
The Excelsior Mid-Cap Value fund began buying Cendant Corp (CD) a year ago, when the travel and real estate company was unfairly tarred with the same brush as businesses in the midst of accounting scandals, says John McDermott, who helps manage the portfolio.
At the same time, Cendant, the parent of Avis Rent a Car and Days Inn hotels, was being hurt by the weak economy, says McDermott.
Cendant, however, was four years removed from its bookkeeping problems, the executives associated with them were no longer around, and, on balance, McDermott says he and Timothy Evnin, the fund’s co-manager, “thought it looked like a pretty good value.”
Cendant, one of the funds’s major holdings, is the kind of stock that Excelsior Mid-Cap Value invests in. McDermott explains that he an Evnin are willing to own shares that have been beaten down if they think the condition is only temporary.
“We look for companies that are in the midst of some sort of change. Typically, they’ve underperformed in recent periods,” McDermott says. But if you can buy them at a good price, and if something is at work to right operations, then “we’ll go ahead and buy,” he says. These catalysts can be a management change or a restructuring, he says.