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Managers of Clipper Mutual Fund Step Down

Trio who have run the value-oriented stock fund since the mid-1980s are leaving at year-end.

October 01, 2005|Josh Friedman | Times Staff Writer

The skippers of the $7-billion Clipper mutual fund in Beverly Hills are abandoning ship, after two years of lagging performance.

Managers James Gipson, Michael Sandler and Bruce Veaco, who have run the value-oriented stock fund since the mid-1980s, are leaving at the end of the year, the fund's parent company said Friday.

Gipson, 62, is the founder of Pacific Financial Research Inc., the entity that serves as advisor to the Clipper and Clipper Focus funds. He declined to discuss his decision to leave the advisory firm he founded in 1980.

In a short statement, Gipson called it "an honor serving our clients and mutual fund shareholders over the past quarter century."

Clipper has a stellar long-term record, but its performance has slipped in recent years, lagging behind its peer average since 2003. The fund was down 1.4% year-to-date through Friday, compared with an average gain of 4.1% for Morningstar Inc.'s large-cap value category.

But in the last five years, Clipper has averaged an annual gain of 8.4%, compared with a gain of 4.4% for the category, and it was successful through the 1990s.

Gipson is known for lively shareholder reports as well as a committed, "deep value" investing style that bets on out-of-favor companies he expects to rebound. In the fund's latest semiannual report, the managers mocked the rapid turnover so prevalent in today's stock market. "Investors reasonably may feel like a hamster on a wheel -- lots of furious trading activity but little to show for it in terms of profits produced," they said.

The Clipper fund is administered by Old Mutual Asset Management, the U.S. arm of London-based Old Mutual. Pacific Financial Research is also a unit of Old Mutual.

Another Old Mutual subsidiary, Barrow, Hanley, Mewhinney & Strauss Inc., will replace the Gipson team at Pacific Financial Research and, pending approval of independent trustees, at the helm of the two Clipper funds.

Barrow Hanley manages a total of $51 billion, and serves as the lead manager of the Vanguard Windsor II fund. It would pick up $18 billion more from Pacific Financial Research, whose clients include institutions such as pension funds as well as mutual fund shareholders.

Kunal Kapoor, Morningstar's director of fund analysis, speculated that Gipson's team might resurface with another firm, such as a hedge fund, although a contract clause will keep the trio away from the mutual fund business for at least two years.

Kapoor said the Barrow team was likely to add more stocks to Clipper's highly concentrated portfolio and put to work its unusually large cash stake, last reported to be 27% of assets.

He called the timing "unfortunate" for Clipper shareholders who might be counting on the battered portfolio's rebounding. Because the fund is likely to be remade, any rebound could be tempered, Kapoor said.

He also said investors and Clipper trustees should note that the Barrow team's services are available more cheaply at Vanguard Windsor II, whose annual expense ratio is 0.36% of assets, versus 1.12% at Clipper.

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