Long tenure is fairly unusual among managers of growth mutual funds.
Malcolm R. Fobes III, on the other hand, has been at the helm of the Berkshire Focus Fund Ticker:(BFOCX) for more than 13 years, ever since it was set up in 1997.
Morningstar Inc. categorizes the fund, offered by Berkshire Capital Holdings Inc., as “specialty technology,” and it has invested primarily in 20 to 30 technology stocks that are expected to produce long-term growth. It returned 46.23% for the 12-month period ended March 30, with its three-year and five-year returns coming in at 18.68% and 10.16%, respectively.
“I first met Malcolm in the late 1980s, and myself and some others thought he was doing so well in his own investments in the technology sector that we suggested he start a fund, the mission being to select stocks that would become and remain proven leaders,” said Leland F. Smith, an independent trustee with the fund whose day job is chief executive of Elesco Ltd., a consulting firm.
“It was named with Berkshire Hathaway's investment philosophy in mind,” Mr. Smith said, adding that there is no connection between the two.
Although its short-term results are good, its longer-term results have been mixed, and critics are as easy to find as fans.
Karen Dolan, director of mutual fund analysis at Morningstar, noted that no analyst at her firm has covered the fund regularly since 2005. “At that time, we were critical of the fund's risk profile,” she said.
“While it has a tendency to fly high in good times, it struggles mightily in downturns. That same performance pattern held in the 2000-04
bear market and subsequent rally, as well as the 2007-10 down-and-up period,” Ms. Dolan said, adding that the fund has a two-star Morningstar rating, primarily due to its poor 10-year record (-3.47), high levels of volatility and high expense ratio (2%) for a fairly small fund with $40 million in current assets.
Supporters of Mr. Fobes, 46, said such criticism is overly harsh. Mark Mulholland, owner of Matthew 25 Management Corp. and president and manager of the Matthew 25 Fund Inc., is among them.
“Morningstar has great deficiencies,” he said. “In fact, it would be impossible for a fund like Malcolm's to achieve a five-star rating under their criteria — they view volatility as a risk, but it is not. Nor is beta,” Mr. Mulholland said. “Permanent loss of capital — now, that is a risk,” he added.
“Berkshire has survived two horrendous markets, and Malcolm has developed trading techniques that will help him [be] better at navigating the down markets,” Mr. Mulholland said.
What the fund does have aplenty, according to everyone, is extraordinary up-market performance.
It also can boast an independent streak with little management turn-over and a somewhat eclectic mix of investments. That mix includes apparel and footwear, which now make up 7.41% of the fund's holdings.
“The fund has been diversified just a bit of late, but it still follows the goal of having emerging or strong-growth technology-related industries and leaders,” Mr. Smith said.
“One of the unusual characteristics is that we are a small board — just the three of us,” he said, including Mr. Fobes as manager, himself and another independent trustee, Andrew W. Broer. Both Mr. Broer and Mr. Fobes declined to be interviewed for this story.
Prior to starting the Berkshire Focus Fund, Mr. Fobes worked for Adobe Systems Inc. and served as co-portfolio manager of The Wireless Fund.
“One of the things about Malcolm is how dedicated he is,” Mr. Smith said. “I've encouraged him to take some time and spend more time traveling with his family, but he is a 24-7 guy.”
He said the fund had considered significant expansion when it approached $100 million before the technology bubble.
“After the bubble, though, we decided not to expand it or take on a lot of additional overhead — I'm an economist by academic trade, and somewhat conservative,” Mr. Smith said.
E-mail Davis Janowski at [email protected].
