Small Fund Managers Deliver Big

 | Aug 19, 2013 | 2:00 PM EDT  | Comments
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I'm going to wrap my quarterly assessment of 13F filings by taking a look at the opposite end of the spectrum. Last week, I took a closer look at the 13F's of the biggest and best players, names like Warren Buffett and Seth Klarman, who deservedly need to be followed closely.

But Buffett has numerously repeated that his biggest downfall today is that he has to allocate tens of billions of dollars, and that if he was working with much smaller sums, he could generate better investment returns.

We all like to see which moves the Buffetts and Icahns of the world are making. But until I start working with billions of dollars, I'm really interested in the moves being made by the excellent investors who are working with significantly smaller sums.

A must every quarter is the 13F filing of Martin Capital Management, an investment vehicle run by Frank Martin out of Elkhart, Ind. If you are scratching your head at Indiana, that is exactly the point. Who knows about investing in Indiana? Frank Martin does and does very well.

Martin Capital manages more than $100 million, so you know his investment universe casts a wide net. That kind of money enables you to invest in a $50 million company just as easily as a $2 billion company. Performance results have been very satisfactory -- annualized returns north of 10% for a very long time. That number becomes more impressive considering that Martin has been holding a lot of cash lately -- upward of 30% of his portfolio.

As for holdings, his biggest position is Gentex (GNTX), a specialty auto parts company that focuses on developing highly-sophisticated lighting and rear view mirror components. Gentex is of the very highest quality: a debt free company that has delivered returns on equity in the mid-teens for as long as you can go back.

Gentex knows how to make money without the use of leverage. The cash rich balance sheet has allowed the company to pay a nice dividend and to buy back stock, a combination that almost always is good news for shareholders. Other notable positions consist of Wal-Mart (WMT), Abbvie (ABBV), and Amgen (AMG). It seems Martin is keen on the bigger, deeply entrenched businesses in this environment.

Another favorite 13F is that of Roumell Asset Management, run by Jim Roumell in Maryland. Working with a couple hundred million dollars, Roumell is one of the most research-intensive funds I've come across. They visit management, travel to company operations, consult with experts and do anything else to peel back the entire onion. It was Roumell who gave me the idea of Tecumseh (TECUA), which is up over 150% since I passed it along on RealMoney. Tecumseh is Roumell's biggest position, but that is because of the surge in the share price. In terms of new dollar commitment, the biggest name is Apple (AAPL), a name that is becoming a staple of many value investors portfolio these days.

Other notable holdings include Tetra Technologies (TTI), Seachange International (SEAC), Ultra Petroleum (UPL), and Aeropostale (ARO).  

Smaller funds like Martin and Roumell that hold no more than 10 to 25 securities at any given time spend an excessive amount researching each and every pick. Don't think for a minute the same level of analytical rigor exists at funds holding 50 or more securities, regardless of the number of analysts involved.

If you want good investment ideas, take a close look at the relatively-concentrated portfolios of these smaller investment firms.

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