More Ideas From the Pros

 | May 19, 2014 | 11:00 AM EDT
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I'm still working through the list of quarterly 13F filings, trying to sniff out any possible ideas in this very top heavy market. I examine a couple of mutual funds today that have earned the right to be regarded as two of the best.

The first is the Fairholme Fund run by Bruce Berkowitz. He is a rare fund manager who is truly willing to sit on a ledge alone for years while the market does something else. How else do you explain the fund's long-standing position in Sears Holdings (SHLD)? Unless you are willing to be extremely patient, this fund's picks may not excite you as others.

Fairholme's portfolio is skewed towards financials. The largest position remains American International Group (AIG), which has been a stellar performer the past couple of years. The next largest stake consists of the widely-publicized position in the preferred equity of Fannie Mae and Freddie Mac. Fairholme took no new positions in the quarter save for a very small stake in international telecom giant Vodafone (VOD).

Southeastern Asset Management is another firm I love to watch closely. As managers of the Longleaf Funds based in Tennessee, founder Mason Hawkins has earned his spurs over decades of successful investing. The first noticeable portfolio change during the first quarter was the sale of fund's position in DirectTV (DTV). Recently, DTV shares have advanced quickly on rumors that AT&T (T) would buy make a play for the company for $50 billion.

In fact, Southeastern was a seller of securities during the first quarter. Gone are positions in aggregate producers Vulcan Materials (VMC) and Martin Marietta Materials (MLM). Interestingly, the firm is still holding on to its position in Texas Industries (TXI), also a producer of construction aggregates. Also completely sold was the stake in Wendy's (WEN).

Huber Capital Management is a California fund with about $4 billion in assets. This fund holds a wider array of securities, but they are a solid outfit with sound investment principles. The Huber Small Cap Value Fund (HUSIX) has a five -year annualized return of 34%. The largest position in the fund is CNO Financial (CNO), a $3 billion administrator of insurance products. CNO serves all the major names including Humana, and United Health.

Other names in the Huber fund include Rent-A-Center (RCII), Virtus Investment Partners (VRTS), and Carpenter Technology (CRS).

Hindsight is certainly 20/20. I doubt the next five years will be remotely close to what the market has done the past five years, so past performance is not the Holy Grail. When markets get frothy, however, anchoring on the ideas of shrewd investors can be the best approach to capital preservation.

Don't forget that when you notice investors not buying, that too is an active investment decision.

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