Quick Take: The Aegis Value Fund (AVALX) has lagged its peers by a bit lately, but it has stayed well ahead of them since its inception five years ago.
This year through last month, Aegis Value was up 18.3%, versus 19.7% for the average small-cap value fund. But for the five years ended in July, it gained 17.6% on average, compared to 7.7% for its peers.
Scott Barbee, the fund’s lead manager, describes himself and the other members of his team as “deep value” investors, who look to buy stocks selling at severe discounts to what they think a company is actually worth.
The managers focus on very small companies and have no qualms about sitting on a cash cushion when they can’t find stocks they like.
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In a camp of money managers hunting cheap stocks, Scott Barbee’s tent would be pitched at the far end.
Barbee, who heads the team that runs the Aegis Value fund, looks for shares trading at deep discounts to what he thinks they’re actually worth.
“On the value axis, we’re at an extreme,” says Barbee, who oversees the fund with William Berno and Paul Gambal.
Initially, the managers focus on stocks trading for less than a business’s book value. Once that hurdle is cleared, their interest will be piqued by companies that buy back shares. Such repurchases can indicate that management wants to boost value for shareholders to its maximum, Barbee says.
Barbee also keeps an eye out for catalysts that can lift a stock, like a restructuring or an industry consolidation, and he likes to own companies that aren’t widely followed by Wall Street. These stocks, he notes, can soar once mainstream analysts begin tracking and recommending them.
Because of their modest size, many of the companies the fund owns don’t appear on major brokerage houses’ radar screens, Barbee says. While the managers trawl for big bargains, they buy little companies: those with market caps of up to $1 billion. “We tend to be on the smaller side of small,” he says.