Mark Travis: A midcap leader goes for boring — with dramatic results

If financial advisers are looking for a mutual fund that will put their clients in the hottest new sectors, the Intrepid Capital Fund isn’t for them.

Whenever the rest of the market is partying, Intrepid is likely to be a wallflower, waiting for the right time to buy low-key but solid companies that will provide a good return.

For instance, in the late 1990s, Intrepid didn’t benefit from the technology stock surge. In fact, it lost about 30%.

“We more than made up for it in 2001-03, when most people took it on the chin,” said Mark Travis, 51, president and portfolio manager at Intrepid Capital Funds.

“We’re willing to look stupid in the short run — hopefully, short run,” he said. “We hope that over time, it leads to outperformance.”

Mr. Travis’ approach with Intrepid has produced strong results recently.

Its five-year return of 9.67% puts it in the top 1% in its midcap category, according to Morningstar Inc.

Over the past three-year period, it has ranked in the top 30%.

The fund uses what Mr. Travis calls private-market-valuation techniques.

“It takes a lot of patience,” he said. “In a world where the market is priced at 15 to 18 times operating income, we’re trying to acquire shares for six to eight times operating income.”

And Intrepid seeks to identify businesses that generate strong cash flow and reward shareholders with stock buybacks or dividends.

“We’re looking for things people need and use — basic, boring businesses. It’s not sexy,” Mr. Travis said. “It’s a little like watching paint dry, but it does work. It’s also countercyclical.”

One example of such an investment is Big Lots Inc. (BIG). The discount retailer has 1,600 locations nationwide that generate a lot of cash flow.

“In a tough economic environment, stretching a dollar is something people consider,” Mr. Travis said of the store’s popularity.

Another household name in which he invests is The Western Union Co. (WU), the money-transferring business. It takes on low debt, maintains a high cash position and shells out money to investors.

“We think it’s a great brand,” Mr. Travis said. “You’re paid to wait with a 3% dividend.”

Intrepid is a relatively small fund at about $425 million in assets, a position that Mr. Travis uses to his advantage. He can benefit from upward movement in a small company by purchasing a modest amount of shares.

“It’s easier for us at this size to find value,” Mr. Travis said. “We’re fishing in a deeper pond.”

Over the past five years, Lipper Inc. has given the fund its top rating — five stars — on total return and consistency of return.

The fund’s investment in high-yield bonds has helped its performance, according to Matthew Lemieux, a senior research analyst at Lipper.

As of Dec. 31, Intrepid had 56% of its holdings in equities, 24% in corporate bonds and 20% in cash.

“We’ve seen strong performance in equities and strong performance in the high-yield-bond market, which has paid off,” Mr. Lemieux said.

Intrepid also benefits from a low portfolio turnover ratio. The patient approach — Mr. Travis will hold on to stocks for several years — is fitting for Intrepid’s Southern setting in Jacksonville, Fla.

“The farthest north I’ve been to live is Athens, Ga.,” said Mr. Travis, referring to the town where his alma mater, the University of Georgia, is located. “There’s not a lot of Yankee in my bloodline.”

Venturing north to the country’s financial capital is more work than pleasure for Mr. Travis.

“I’m a fish out of water in the Big Apple,” he said. “It’s too fast and too pushy for me.”

Mr. Travis also rejected the brokerage model in which he started his career.

“I never liked being in the commission sales business as a broker,” said Mr. Travis, whose father was an E.F. Hutton & Co. broker. “I was never set up psychologically to do well in that environment.”

Related Topics: Spotlight On