Top Fund Manager Akre Finds That Picky Pays, Especially These Days
Chuck Akre has built a reputation as a particularly picky stock picker. He managed a concentrated mutual fund - containing perhaps a couple of dozen stocks, not hundreds - with great success at the Boston investment firm FBR, and he is running his new independent portfolio, the Akre Focus Fund, the same way.
His finicky approach involves seeking out companies that meet three criteria, he explained: They have high returns on capital, are run in ways that treat shareholders as partners and reinvest their accumulated profits in ways that will help them continue to produce high returns. Then there is a fourth criterion: The stocks have to be reasonably priced.
Being so hard to please helped his FBR Focus Fund, which he left last year after a dispute over how revenue and costs were shared between him and FBR, to produce gains of about 10 percent a year for a decade. Over the same time, the Standard & Poor's 500-stock index was essentially unchanged.
His approach also seems to be working for Akre Focus, which was introduced last September and, like the FBR fund, targets medium-sized companies. Akre Focus has gained about 4 percent this year, compared with gains of 1 percent for the S&P 500 and 3 percent for funds in Morningstar Inc.'s mid-cap growth category.
"I'm particularly cautious," he told MoneyWatch. "Consumers are dramatically under-employed. They're afraid about losing their jobs if they have them, they're afraid they won't get a job if they don't."
That fear has persuaded them to pay down credit card debt to the tune of $1.5 trillion since 2008, he noted, and with mortgage rates persistently low, the refinancing boom has pretty much run its course. Both developments should subdue economic growth.
"We won't have the discretionary dollars to spend that we did in the last decade," Akre warned. He expects higher tax rates and entitlement costs to further empty our collective wallet.
That's why he's trying to become even pickier with his stock picks.
"One of the things I'm trying to do in 2010 and beyond is better integrate my world view into my stock selections," he said. "We think it gives us a little more protection in an uncertain market and an uncertain economic environment."
On Thursday, a look at some of the names on Akre's very short list of favorite stocks.
