Stocks & Investing
Stocks and Investing
Stocks and Investing
Wed, July 22, 2009
Tue, July 21, 2009 Mirzam Group: With Investment in "Best Practices" Companies, Mirzam Capital Appreciation Fund Generates 12% Year to D
TEQUESTA, FL--(Marketwire - July 21, 2009) - Mirzam Capital Appreciation Fund (
Mirzam's strategy is to make long-term investments in well-run companies worldwide that forgo excessive compensation and use their free cash flow to grow and increase the value of their businesses, or to distribute that cash to shareholders as dividends. More than 99% of the fund's holdings pay shareholders some portion of their free cash flow in cash dividends.
"We are very satisfied with the fund's performance over the past two quarters, especially because of our long-term investing perspective," said Clifford Morris, founder and managing director of The Mirzam Group. "We were particularly pleased that we generated these returns while pursuing of our strategy of investment decisions based on extensive research, and then holding these stocks for years. We had only a 3 percent portfolio turnover during the past year. We took advantage of the opportunity to grow our portfolio in the first half of 2009 to over 50 holdings by taking positions in several companies we felt represented exceptional long-term value."
Albert Meyer, the fund's lead portfolio manager and president of fund sub-advisor Bastiat Capital, said the fund's performance was bolstered by improving global markets overseas. "Commodities in countries like Brazil, China and India sold off sharply in fourth quarter 2008 as investors sought safety in U.S. Treasuries, which had a negative impact on our non-US holdings and contributed to our trailing 12-month return of -26.8% as of June 30, 2009. However, we've seen a significant stabilization in global markets that contributed to the improved performance of our non-US holdings in first half 2009. We'll continue to benefit if overseas markets continue to do well. For example, the governments in China and India are allocating capital to building infrastructure, which will create demand for steel and copper, which we hold.
"Despite the continuing soft economy in the United States, U.S. markets rallied in the first half from excessive over-selling, which helped our US holdings. We identified several companies we felt had been inappropriately devalued due to over-selling in 2008, and seized the opportunity to add new positions at what we feel are very attractive prices."
The fund added three stocks to its portfolio in the second quarter of 2009 -- Wal-Mart Stores, Inc., The Campbell Soup Company and Paychex, Inc. -- and expanded its position in Ship Finance International Ltd.
"Each of these companies are major players in their respective industries and have clearly demonstrated they understand how to maximize shareholder value," explained Meyer. "We like Wal-Mart and Campbell Soup in part because insiders own 42% and 45% of the stock, respectively, and appear to favor continuing dividend increases. We have a strong bias in favor of high insider ownership because it's one indicator that management's interests are aligned with all shareholders, and what benefits one benefits all.
"Ship Finance is domiciled in Bermuda, so it pays no income tax. Late last year it entered into very profitable leases for deep-water drilling rigs, and we added to our position when the dividend yield increased substantially. In addition to strong performance, Paychex has demonstrated restraint in executive compensation. For instance, the company's CEO earned $4.6 million in 2008, which is modest by U.S. standards and about half of what the CEO of its largest competitor earns."
Morris added: "Excessive executive and employee stock-based compensation can quickly erode shareholder gains. Unfortunately, excessive compensation is an issue primarily among U.S. companies, which is one reason we have to work particularly hard to find suitable US-based candidates for our portfolio. When you compare executive compensation among U.S.-based companies and those based elsewhere, it's night and day. Executive compensation at larger U.S. corporations far exceeds what's considered appropriate in most of the world."
A key element of the Capital Appreciation Fund's strategy is to own companies with appropriate executive compensation and less than 5% of the total outstanding shares comprised of outstanding stock options. Meyer, an outspoken advocate of greater transparency in US markets for executive compensation and options granting, said many US companies that generate strong growth and cash flow, yet deny shareholders the benefits with stock buybacks at inflated prices and exercising options at rock-bottom prices.
"Unfortunately, it's relatively easy and perfectly acceptable on an accounting basis for companies to structure these arrangements, yet difficult for most investors to understand or identify," said Meyer. "While these practices are getting more attention from sophisticated investors, they remain a murky area for most investors."
The Capital Appreciation fund has significant holdings in GlaxoSmithKline, Johnson & Johnson, Nestle, StatOil, Syngenta, Telefonica, Emerson Electric and Southern Copper. All meet the Mirzam criteria for strong performance generating significant free cash flow, with fair yet conservative executive compensation policies, and a focus on generating long-term value for shareholders. To remain appropriately diversified, no stock comprises more than 5 percent of the portfolio.
Morris concluded: "Our fund doesn't seek to outperform the S&P 500 through market timing. Long-term value creation by the companies we hold is the best way to generate gains. The stocks in the Capital Appreciation Fund represents the kind of portfolio we believe a long-term buy-and-hold investor would have if he or she had the time and expertise to conduct the due diligence on holdings, monitor performance, and identify selected value opportunities due to events or market conditions. Since the beginning of 2009, the fund's assets have grown to $5.3 million at June 30, 2009 from $4.6 million."
About The Mirzam Capital Appreciation Fund
Founded in 2007, the Mirzam Capital Appreciation Fund (
You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fund's prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fund's prospectus at [ www.MirzamFunds.com ]. Past performance is no guarantee of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance data current to the most recent month end may be obtained by calling 1-888-693-8056 or by visiting [ www.mirzamfunds.com ].
Distributed by Unified Financial Securities, Inc., 2960 North Meridian Street, Suite 300, Indianapolis, IN 46208. (Member FINRA)
