The two men–who are both RIAs with over 28 years of investment experience each and who launched the Encompass Fund in 2006–look to invest exclusively in relatively unknown and undervalued companies that have the potential for great returns somewhere down the line, regardless of the companies’ size or geographic location. It is a strategy that they use to manage around $190 million in separate accounts for individual investors and one that has paid off more than handsomely for Berol, Gissen, and their shareholders, because in 2009, the Encompass Fund had a stunning total return of 137% and ranked first in Morningstar’s World Stock Fund category. The fund also outperformed its Morningstar benchmark by 106 percentage points and its entire category by over 100 percentage points, and had returned 92% for the 12 months ending March 31.
Evidently, it pays to have the world as your oyster.
“Unlike other funds, we are not constrained to investing in only large cap or small cap or technology or any other single category,” Gissen says. “We are set up so that we can invest in any kind of company, in any sector and in any country. We are focused on capital appreciation so we look for companies whose share values are undervalued but will grow over time.”
Spanning the Globe
SouthGobi Energy Resources is one example of the kind of company that the go-anywhere fund finds. Encompass invested in the Canadian company a few years ago, at a time when it was expanding its resources, Gissen says. Now, SouthGobi owns three significant coal projects in Mongolia. Its flagship Ovoot Tolgoi mine, which is located 20 miles from the Chinese border, is operating 24/7 in order to feed China’s seemingly insatiable demand for coal, and this has sent SouthGobi’s stock price soaring.
Similarly, Encompass invested in Leisure Canada, a Canadian real estate company that some years ago bought land in Cuba and is now actively working on developing a parcel of that land to build a luxury hotel in downtown Havana.
The investment is a longer-term play for Encompass, Berol says, but one about which both he and Gissen are extremely enthusiastic. Many Canadians have been traveling to Cuba in recent years, he says, and there is a strong chance that the Obama Administration will ease some of the restrictions currently in place vis-?-vis Cuba, thereby making it easier for Americans to travel there and increasing the prospects for the hotel business.
Leisure Canada, like many of Encompass’s investments, came directly to Berol and Gissen via the company’s management team, whom the duo knew. An important part of their approach, in fact, is getting to know companies as closely as possible, so that they can get first dibs on exciting new projects and ventures. They attend conferences and company presentations and make it a point to meet up regularly with company management. They keep abreast of any private placements of the companies they are either invested in already or in which they are looking to invest. They read voraciously and they also travel extensively (although they have not yet been to Mongolia) to meet with company managers on the ground and to check the status of businesses and projects that their holdings–or prospective holdings–have under way.
Furthermore, Berol and Gissen have close contacts with numerous brokerage firms that are familiar with Encompass’s approach and know to bring them the kind of lesser-known, not-so-closely-followed-by-the-mainstream kinds of companies that they are looking for and that fit their investment themes.
“We are also contrarians and we are looking for companies and industries that are out of favor, because they have more chance to go up,” Berol says.
Biding Their Time
Moreover, it does not matter if it takes a while for those overlooked, under-valued industries to go up and for the companies within them to start performing. This is particularly true for the resource companies that Encompass currently favors, Gissen says. Some of the firm’s holdings in that sector–gold mining companies, for example–have not started to make money as yet, he says, but they are sitting on what will eventually turn out to be major cash cows.
Uranium Energy Corp., for example, one of Encompass’s main holdings, has not even started producing uranium as yet, but based on the expectation alone that it will become America’s leading producer of uranium when it finally starts producing toward the end of 2010, the company’s stock price tripled last year, he says.