Paramount Fund Reopens--With Commodities Slant
Bill Sams may be one of the sharpest “value” stock players of his day, but he admits he’s hard-pressed to explain exactly what constitutes value and what doesn’t. It is, he says, mostly a case of “you know it when you see it.”
Luckily for his shareholders in the FPA Paramount stock mutual fund, Sams has spotted true value enough over the past decade to place Paramount in the highest echelon of stock funds--even garnering it a spot on the super-elite 1994 Forbes magazine Honor Roll of funds.
Yet since 1989, potential investors have been politely turned away; Sams has shunned the limelight and barred new clients from the fund.
Until this week. In a surprise switch, Sams agreed to reopen Paramount, a move he admits took some of his current clients aback. The decision could help boost the fortunes of the small but highly respected FPA (First Pacific Advisors) fund family, which is based in West Los Angeles and owned by United Asset Management.
So far this week about $6 million has trickled into the now-$360-million-asset Paramount, which has an upfront sales charge as high as 6.5%--no doubt too high for many investors’ taste. Sams, a plain-spoken 57-year-old based in Dallas, says the low-key response to the reopening suits him fine. He has already said that the fund will close again if assets reach $500 million.
“I’ve always run money with the attitude that the smaller the amount, the better,” he says.
Then why reopen Paramount at all? Despite what many Wall Streeters describe as a fairly valued or overvalued stock market that is primed for trouble, Sams still senses opportunity in one controversial market sector: commodity plays.
Paramount’s portfolio is overwhelmingly dominated by stocks of companies in the metal, paper, and energy businesses, names such as Kaiser Aluminum, Boise Cascade and Occidental Petroleum. Sams sees no good reason to abandon most of them, even though their share prices have been bid up significantly over the past year, and even though the conventional wisdom is that the U.S. economy will soon slow markedly.
The Federal Reserve Board, Sams concedes, didn’t do him any favors by raising interest rates again on Tuesday. His stocks, he says, may have a rough couple of quarters ahead if more investors fear that the U.S. economy will weaken and with it commodity producers’ pricing power.
But if the commodity stocks dive, Sams says, he’ll just buy more. He looks at the momentum building in the world economy, and at the burgeoning demand for basic materials in such fast-growth countries as China and India, and concludes that the decade-long deflationary cycle in commodities has broken. Prices are going up, Sams says, and as with the downside, “these (up) cycles always last longer than most people think.”
If Sams has proven anything in his long career with FPA, it’s that he understands market cycles. In the 15 years through 1993, Paramount’s return was 1,030%, versus 788% for the average stock fund, according to Lipper Analytical Services.
For eight of the last 12 years, including this year, Paramount has outperformed its average peer fund in the growth-and-income category. For his efforts, Sams’ fund is one of only 20 on Forbes’ 1994 Honor Roll, the annual list of funds that have proved their mettle in good markets and bad.
Although Wall Street would call him a “value” player--someone who hunts stocks selling cheap relative to asset-value--Sams’ true talents seem to be old-fashioned intuitive stock picking and savvy day-to-day trading. He generally buys what other people don’t want, or companies whose true potential isn’t well understood.
That still describes many commodity companies, he says--firms such as nickel miner Inco, energy firm Coastal Corp., and Freeport McMoRan Copper and Gold. Sams concedes he doesn’t rely heavily on earnings projections for these companies, but on his own sense that their businesses are turning, and that most investors haven’t yet caught on.
He is, he says, often too early with the stocks he likes. He’s sitting now with Champion International, a wood and paper company whose stock has disappointed Wall Street for most of the past 15 years. “It’s one of the few paper companies that never got restructured,” Sams says. He figures something, eventually, will happen.
At some point, Sams says, it will be time to sell most commodity stocks and move on to other issues. He has begun to nibble in the consumer area, buying troubled Woolworth, for example. But for the most part Paramount is a commodity bet, and that probably won’t change soon, he says.
“Most portfolio managers hate to buy these kinds of companies,” Sams says. He’s betting that before this cycle is over, that will have changed.
The FPA Paramount stock fund has beaten the average growth-and-income stock fund in eight of the last 12 years.
Total investment return: Year Paramount Avg. G&I; 1983 +31.3% +21.2% 1984 +10.1% +3.8% 1985 +18.8% +27.2% 1986 +5.3% +15.4% 1987 +21.9% +2.2% 1988 +19.8% +14.9% 1989 +22.6% +23.4% 1990 +1.6% -4.7% 1991 +24.3% +28.8% 1992 +9.9% +8.3% 1993 +20.5% +10.9% 1994* +7.4% +1.6%
* Year to date
Sources: Annual G&I; fund numbers from Morningstar Inc., except 1994 data, from Lipper Analytical Services