Nov. 15, 2004 — When an observer characterizes the Berwyn Income Fund (BERIX) as a bond fund that also owns stocks, portfolio manager Edward Killen agrees.
Common stocks, which must pay dividends, can account for up to 30% of the assets in the fund. It gets fleshed out with fixed-income securities, convertible and preferred equities, and cash. Over the years, the portfolio has emphasized investment-grade and high-yield corporate bonds, Killen says.
“It’s a counterbalance, really, to an aggressive equity investment,” Killen says of the $195-million fund, which he’s run for more than ten years.
Berwyn Income, which was launched in 1987, was originally intended to compliment the Berwyn Cornerstone Fund (BERCX) and the Berwyn Fund (BERWX), which concentrate on stocks.
At the end of the third quarter this year, about 64% of the fund’s holdings were in corporate bonds, including junk bonds. (It can also buy U.S. Treasurys and government agency bonds.) Some 24% was invested in common stocks. Convertible securities and preferred stocks accounted for approximately 4%. The fund’s cash stake was 8%.
The fund’s investment blend resulted in a return of 5.7% this year through October. By comparison, its asset allocation-hybrid U.S. income fund peers were up 2.9% during that span. Berwyn Income gained 10%, and 9.3%, respectively, on average, for the five and ten years ended last month, while similar funds rose 3.9% and 6.7%.
In choosing investments, Killen and the fund’s analysts consider the qualities of individual companies as well as macroeconomic factors.
When picking common stocks, the team looks for shares priced low compared to a company’s earnings. Beyond that, they want to see businesses with little debt; solid balance sheets, margins and cash flow; and high returns on capital or assets.
The fund can buy companies of any size. Analyst George Cipolloni III, who joined Berwyn Income two years ago, says its current roster of stocks features giants like drug maker GlaxoSmithKline plc ADR (GSK), and Hawkins Inc (HWKN), a small-cap specialty chemicals producer.
Around 25 common stocks make their way into the portfolio. That number facilitates research and enables winners to make significant contributions to the fund’s performance, Killen says.