BUSINESSWEEK ONLINE : AUGUST 7, 2000 ISSUE
BUSINESSWEEK INVESTOR Meridian Value: Looking for a Few Battered Stocks It's hard enough for mutual funds to dodge bear markets--let alone thrive when stocks are heading down. That's exactly what the $98 million Meridian Value Fund (MVALX) did over the past few years, even as the small-cap stocks it specializes in slumped. On average, the fund has returned 28.4% over the past five years, an impressive 14 percentage points more per year than its benchmark, the Russell 2000 index. It's not surprising that BUSINESS WEEK awarded this small-cap blend fund an A for its performance compared with others in its peer group. What is surprising is that it's one of a few small-cap funds to earn an A when measured against all equity funds. In short, it's one of the best funds you never heard of. And it's a no-load fund to boot. Fund managers Kevin O'Boyle and Rick Aster escaped the fate of many of their peers by avoiding the high-flying stocks with nosebleed valuations. Instead, they choose stocks that have already been knocked down. ''That keeps us from suffering major losses,'' says lead manager O'Boyle, who is based in Larkspur, Calif. Although the name implies that the fund practices value investing--buying the cheapest, most unloved stocks---it actually takes a more moderate approach. ''We try to buy busted growth stocks,'' says O'Boyle. In other words: growth, interrupted. One Meridian holding is PartnerRe, a global reinsurance underwriter. It fits Meridian's criteria--a market leader with a strong balance sheet and a return on equity of nearly 15%. Like the other stocks in the fund's portfolio, PartnerRe also suffered a decline in earnings, from almost $4.50 per share in 1998 to less than $2 in '99. ''A couple quarters of disappointing investors' expectations, and the stock was hammered,'' O'Boyle says. Meridian's managers won't buy a stock unless they can identify a catalyst that will bolster earnings. In PartnerRe's (PRE) case, they noted that the reinsurance industry's pricing power was improving as weaker companies left the market in 1999. With the industry consolidating, PartnerRe may also be a takeover target. What counts is not change alone but its impact on the financials. So O'Boyle and Aster estimate a company's future cash flows. If the stock trades for less than the current value of these future cash flows, it's a buy. PartnerRe has paid off: Since Meridian purchased its stake for about $30 a share in January, the stock has risen some 20%. Typically, Meridian holds some 40 stocks in several industries, including health care, technology, and financial services. The fund concentrates on small- and mid-caps, but it's free to own large stocks. One such holding is Waste Management (WMI), a stock that has fallen $1 since Meridian bought it for an average of $19 a share. If Meridian makes money off Waste Management, it will have succeeded where many others have failed. Given the fund's track record, that wouldn't be surprising. By Anne Tergesen _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Funds That Haven't Lost Their Zip TABLE: New A-Rated Equity Funds TABLE: New A-Rated Bond Funds Meridian Value: Looking for a Few Battered Stocks TABLE: Meridian Value Selected American: A Value Fund That's Beating the Odds TABLE: Selected American INTERACT E-Mail to Business Week Online

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