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A Bargain Hunter With A Wide Scope


As a boy growing up in rural New Jersey, William Fries, now 65, spent plenty of time around farm equipment. He could even identify a John Deere tractor by its humming sound.

Now the Deere (DE) shares in his Thornburg Value Fund are humming. The company remained out of favor with investors last summer as the brutal heat wave in Europe hurt its business there. Fries added the stock to his portfolio in late August while the Continent baked after recognizing a gradual shift in the company's culture, with a new focus on earning higher returns on capital.

The investment has gained 40% -- that's nearly double the return of the Standard & Poor's 500-stock index. Overall, the $2.1 billion fund, a winner in the large-cap-blend category, has trounced its peers in the past five years, with an average annual total return of 5.9% through Dec. 31, 2003.

Before he moved to Santa Fe, N.M., in 1995 to join Thornburg, Fries worked for 20 years at USAA Investment Management in San Antonio, where he managed international, growth, and income portfolios. He brings all of that expertise to Thornburg Value. It's a highly focused fund, with fewer than 50 large-company stocks. "We wanted to create a fund that's good for all seasons," Fries explains.

Fries takes a three-pronged approach to picking stocks. Deere falls into what he calls the "basic value" category. So does Marathon Oil (MRO). These stocks are cheap based on traditional valuation yardsticks such as the ratio of a company's stock price to its sales and book value.

The second group is what Fries calls "consistent earners" -- high-quality, blue-chip companies such as drugmaker Pfizer (PFE) and financial-services giant Citigroup that deliver a steady flow of earnings.

UNEXPECTED CHOICES. Rounding out the mix are rapidly growing companies. This group of emerging franchises includes online broker E*Trade (ET), consumer Web site operator InterActiveCorp (IACIZ), and software maker Electronic Arts (ERTS). You don't see these kinds of growth companies in the typical value portfolio. Like Legg Mason's (LM) Bill Miller, Fries has an unusual sense of where to find bargains. "We try to avoid artificial barriers," says Fries in his gravelly voice. "We don't have anything synthetic that says: 'You can't go there."'

Through February, 2,347 companies that Fries tracks reported a weighted-average earnings gain of almost 25% year over year -- 1.3 percentage points higher than Wall Street analysts' estimates. Although the market has climbed significantly in the past year, Fries expects growing corporate profits to drive it higher. "We've had a return-of-confidence rally in stocks, but we haven't had the movement that will come as earnings continue to be reported at higher levels," he says.

Even so, Fries doesn't think stocks are bargains right now. "Valuations are not as compelling as they were in the summer of 2002," he laments.

Fries also gets brownie points for keeping his shareholders informed. Unlike many other fund managers who keep their holdings close to the vest, Fries typically posts a note on the Thornburg Web site after he establishes a new position in the portfolio. In an era when funds are under intense scrutiny, it's refreshing to find a fund manager who's practicing better disclosure.


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