Weitz Partners Value Fund (WPVLX) is a non-diversified stock fund seeking capital appreciation. In a recent fund screen of the top-performing Growth funds for the year to date period through July, it turned up as one of the best in its category. Note that Value Line’s Growth objective group contains funds based on their objective of capital growth (appreciation), so, despite the word “value” in the fund’s name (and its obvious investment focus), it fits squarely in this broad group.
The fund is a self-described “go-anywhere” offering that can buy stocks from companies of any size market capitalization. One way to view the fund is that it provides the Weitz family of funds’ best ideas in one place. Note, however, that it is non-diversified, which means the portfolio is small. The fund recently held just over 40 companies, far fewer than the average fund. This is to be expected in a fund that holds just the best ideas of a management team, but it increases the risk that one holding can materially hamper overall fund performance.
Interestingly, this fund’s history is similar to that of Baron Partners Fund (BPTRX) in that it was structured as a private limited partnership for the approximately 10 years prior to its converting into a mutual fund in 1993. Since the investment objectives, policies, guidelines, and restrictions were roughly similar, the partnership’s performance history was allowed to transfer over to the fund. Thus, our records, and the fund’s literature, present data back to 1983, despite the fact that the fund wasn’t officially a mutual fund until a decade later.
Managers Wallace R. Weitz, the founder of the fund family, and Bradley P. Hinton, the family’s Director of Research, attempt to determine what some refer to as the intrinsic value of a company. Essentially, this is what someone would have to pay to buy the entire company based not on the price of its shares, but on the value of its assets. Weitz’ valuation analysis focuses on physical asset values, earning power, and the intangible value of a company’s “franchise” in its market. True value investors, however, the fund’s managers attempt to buy companies whose share price is below this intrinsic value.
Although this value orientation is central to the fund’s investment approach, qualitative factors are also considered before a purchase is made. For example, Weitz and Hinton seek companies that have a niche or franchise that they believe insulates the companies from competition, thus allowing them to price their products adequately. Additionally, the managers favor companies that generate more cash than they need to conduct their operations. Honest and intelligent management teams that treat shareholders as partners is also an important factor in the purchase decision.
Generally speaking management has a three-to five-year time frame when making an investment and will sell a stock when the company’s share-based valuation approaches or exceeds management’s estimation of its intrinsic value. It’s also important to note that Weitz and Hinton do not try to time the market and may hold cash if they can’t find investments with which they are comfortable.
This investment approach has proven beneficial for shareholders over the long-term, with the fund’s performance falling in the top 20% of its Objective group over the trailing 10-year period through October 31, 2010 and in the top 5% over the trailing 15-year period. Over shorter periods of time, the fund’s performance isn’t as impressive, though this isn’t surprising given its long-term focus and value style. Moreover, the fund’s performance has been achieved with a similar level of risk, so that it earns a Value Line Risk Rank of 3 (Average) but a 2 Overall Rank (Above Average).
The fund’s 1.21% expense ratio and $2,500 minimum investment requirement are both reasonable, making this an appropriate choice for investors seeking a value fund diversified across the market cap spectrum.
At the time of this article's writing, the author had a position in Baron Partners Fund.