Morningstar Advisor - April/May 2009 - 52

Undiscovered Managers Jeff Auxier Auxier Focus Inv AUXFX $16K 14 12 10 Dow Jones Moderate Port 04 05 06 07 08 09 60% over the past year through Feb. 19. He bought near its low, at a time when lawsuits alleged that the school’s advertised job placement and retention rates were misleading. “There was a perceived scandal,” Auxier says, “but I met face to face with management and was convinced that they were of the highest integrity. They were masters of the business and had good operating margins. I just wish I had bought more.” Tightening credit for private student loans has been a recent threat, however. “Money has loosened, but you should be suspicious of anything tied to a credit cycle,” Auxier warns with typical prudence. That said, he expects Obama’s stimulus plan to boost financial aid. Auxier does not always display such brilliant timing, but he will stand firm and buy on the way down. One example is Zimmer Holdings ZMH, manufacturer of orthopedic hip and knee implants. “I thought it was pretty cheap at $66, but I was wrong.” Concerns that possible Medicare reimbursement cutbacks could affect Zimmer’s pricing have hurt the stock over the past year, but Auxier sees an innovative, global business with high free cash flow and low costs, and he has added to his stake. As for Philip Morris, that classic recession-resistant stalwart, “I would buy, and buy, and buy if I had unlimited funds.” Investors can count on Auxier not to get carried away, of course, given his constant cash stake. Not Perfect lingering tracking position in Washington Mutual, for example, and a tiny stake in iShares MSCI Germany Index EWG, which Auxier bought in 2003 when the index was priced at less than 10 times earnings. Some advisors might also be put off by the fact that Auxier prefers to go it alone. “Even better investors gravitate toward other things when they have a large staff, and no one is really on the pulse,” he asserts. “When I have had a number of analysts underneath me, the performance was not as good.” Galloway likes knowing that Auxier is making the decisions on his own, rather than entrusting them to “some young MBA straight out of school.” Stoltenberg considers Auxier’s lack of support “a negative, but not fatal. We like to feel that we can buy a fund and hold it for 20 years. You could buy an American Fund and hold it forever, but Jeff has been as consistent as any fund we’ve owned.” Stoltenberg also appreciates the flexibility that has helped this fund bear up in down markets, and he considers the 1.35% expense ratio fair given an asset base of only $79 million. The fund’s biggest appeal may be that it provides as much excitement as many clients can handle right now. Poehling puts Auxier in a class with Christopher Davis and Bruce Berkowitz, but those managers have hefty stakes in their top picks. Auxier does share their enthusiasm about current investment opportunities: “It is so rare to have a chance like this. If people can get over their emotions, the next 12 to 18 months are going to be an exciting time for shopping.” It is safe to say, however, that he won’t bet the farm. K Laura Lallos, a former Morningstar analyst and editor, is a frequent contributor to the magazine. Category Moderate Allocation Morningstar Rating Expense Ratio (%) 1.35 5-Yr Anl Total Rtn (%) –1.07 5-Yr Anl TR % Rank Cat 35 QQQ Minimum Investment $5,000 Data as of Jan. 31, 2009. Jan-04Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Feb-04Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 May-04Nov-04May-05Nov-05May-06Nov-06May-07Nov-07May-08Nov-08 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Although that cushion has no doubt proved a comfort to shareholders in the current turmoil, this fund is unlikely to soar when the market eventually rebounds. Auxier says that his goal is to “beat the market on down markets, and match it on up markets.” Despite its name, this fund isn’t for investors looking for a stock-picker willing to stake significant bets on compelling picks; less than 20% of assets were in the fund’s top 10 picks at year-end. Moreover, the 120-stock portfolio contains bits and pieces that might not have much impact on performance, but they do seem to represent a departure from the Buffett way. There’s that 52 Morningstar Advisor April/May 2009

Morningstar Advisor - April/May 2009

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