Joseph L. Antrim of Davenport Equity Fund

Quick Take: Joseph L. Antrim has chaired the investment committee for the Davenport Equity Fund (DAVPX) since its inception in 1998. In overseeing the $125-million large-cap blend fund, Antrim relies on the diverse and “opinionated” views of his committee to identify leading but undervalued stocks that are likely to rise in value, and that have little risk of falling significantly.

Diversification and making conservative bets helps keep the fund’s volatility low relative to its peers. However, Antrim’s cautious approach hasn’t sacrificed returns. For the three years ended in October 29, the fund gained 5.3%, versus 2.7% for the average large-cap blend fund, and 3.9% for the S&P 500. Over five-year period, the fund gained 0.1%, versus a loss of 2.1% for its peers, and a loss of 2.2% for the S&P 500.

Antrim’s committee members apply both top-down and bottom-up criteria in choosing from a universe of hundreds of large-cap growth and value stocks. Though the percentage of each varies over time, the portfolio is roughly 60% value and 40% growth at present. The portfolio features low turnover, and a low expense ratio of 1.00%, versus 1.15% for its peers.

The Full Interview:

S&P: What is your investment philosophy?

ANTRIM: We’ve been characterized as a large-cap core fund. Our philosophy is to try to make money for our clients, and not to lose money in the process. We don’t have a black box, and we’re not quantitative-type people. Capital appreciation, dividends, value — we’re looking for stocks that go up.

Our benchmark is the S&P 500. To beat it, we need to stay fully invested because historically, the market goes up more than it goes down. Also, we can’t be a quasi-indexer, so 15% or 20% or our names are “outliers” — either they’re not in the S&P 500, or our share is larger than that of the index.

We operate in a very conservative fashion. We consider what could go wrong before dreaming about what could go right. That also keeps us diversified. We try to control damage by not investing too much in one sector or stock.

S&P: How would you describe the way the fund is operated?

ANTRIM: We have a committee of six people with varied interests and knowledge, and we don’t divide their responsibilities by sector. What we don’t want is unanimity of thought — the more opinionated they are, the better.

We meet once a week to go over our folder of buy and sell ideas. We rarely buy or sell a stock right away, but instead put it on a watch list. Later, we vote on it, and majority wins. Also in that folder are discipline items: stocks we own that are down 15% or more from their recent high, or that have reached their target price.

We’ve got 50 holdings, the biggest of which is 3.5%. We usually buy the same amount of every stock, so when something is a big holding it’s because it’s done well. When a stock hits its target price we’ll sell a third and raise the target price on the remainder.

S&P: Who is your ideal investor?

ANTRIM: Somebody who is conservative and interested in preservation. We tend to attract more clients during normal or even bad times. We have some 4,900 shareholders whose average account size is about $25,000 — typically IRA and individual accounts. We don’t have many institutional clients.

S&P: Do you follow the sector weighting of the index? Are there any areas you avoid?

ANTRIM: We try to be in every sector, but don’t follow the index. The S&P is 7%-8% in energy; we’re 11%-12%, and that’s helped us. We think oil prices will come down, but are more bullish than the market as a whole.

Financials are 20.5% of the S&P, our weighting is 16%-17%. In health care, we are slightly underweight.

We are somewhat overweight in consumer discretionary, although Lowe’s is our only retailer. Rather, we have two gaming stocks, Harrah`s Entertainment (HET) and Intl Game Technology (IGT), which represent just under 5% of our holdings. We also own Lauder (Estee) Co (EL).

We’re a little underweight in consumer staples because we haven’t found any reason to make it overweight. In industrials and materials, we’re about equal weighted.

In technology, we’ve always been underweight. We underperformed in the late ’90s because of it. We have no intention of being overweight in technology.

S&P: At the time of the tech boom, what was your thinking?

ANTRIM: We were not comfortable with tech stocks, and still aren’t for different reasons. Back then, it was the fast product cycles — we didn’t know who would be in business tomorrow, or why certain Internet companies were in business to begin with. But now, we see it as a commodity industry whose stock prices still reflect some of the old glamour.