Value superstar falls to earth

Value investing continues to leave roadkill along the highway. Just ask David Schafer.

While many value managers have been hit by investors who have yanked money out during the past two years, few have been punished as harshly as Mr. Schafer.

“[Assets have been] dropping at about a $2-million-a-day clip — including weekends,” says Jonas Ferris, co-founder in Ann Arbor, Mich., of MaxFunds.com, a website that analyzes no-load funds. As late as 1998, the Schafer fund had $2.1 billion. On Feb. 28, assets stood at just $486 million. That’s a 77% drop.

Mr. Schafer, a one-time superstar, is entering his third year at the bottom of the heap. It isn’t just the growth pack that’s mowing him down; his Strong Schafer Value fund is trailing his down-and-out value peers.

What’s more, it’s one of the few stinkers in Strong’s otherwise solid equity lineup.

Year to date, the mid-cap fund was down more than 10% through Feb. 29, trailing both the Standard & Poor’s 500 stock index and the average mid-cap value fund, down 6.93% and 7.81% respectively, according to Morningstar Inc.

In 1998 and 1999 Mr. Schafer turned in rotten performance as well, losing 6.6% and 16.4% respectively. The last time he beat his peers was in 1993. “This is a severe fall from grace,” says Emily Hall, a Morningstar analyst who follows the portfolio.

There was a time when Mr. Schafer’s deep value approach was prized by investors. His five-year record at the end of 1997 was 20.85%; now it’s an average annual 9.54%.

In fact, Strong of Menomonee Falls, Wis., entered into a limited partnership with Schafer Capital Management Inc. in 1997 and tapped him to manage the mutual fund and some private accounts.

But Mr. Schafer hasn’t been able to deliver the goods.

Strong paid for the option to buy the firm, which can be exercised as early as January 2001. Regardless of what happens, the company is unlikely to fold its value offerings. Whether Mr. Schafer will be the skipper is the question.

Mr. Schafer was traveling last week and didn’t respond to several requests for comment. In his annual report, he says he’s not changing his stripes.

The real culprit is lousy stock picking, says Ms. Hall.

“Sector selection doesn’t account for all of the reasons for the poor performance,” Ms. Hall says. “It’s been hit by a handful of individual blow-up stories.”

Making matters worse is that as investors cash out, portfolio managers of money-losing funds have to sell depressed stocks to meet redemptions.

“The greater story there is the widening dispersion between the top quartile performing funds and the bottom quartile performers,” says Richard Bregman, a New York-based adviser who sold his clients’ shares of the fund almost five years ago, before Strong became involved.