Gabelli's aim is to find companies that should be more highly valued
The GAM Gamco North American fund, managed by Mario Gabelli of US-based Gabelli Associates, is run on a value-orientated, low-risk basis. It is ranked 11 out of 117 in the North American offshore sector over three years, with a 52.2% return over that period.
Over one year, the fund ranks eight out of 197, having managed to maintain capital by creeping up 3.79% over that period.
Gabelli and his team of 15 analysts try to find companies that are under-researched and ought to be more highly valued, according to his quantitative and qualitative analysis. The whole family of funds run by the company shares this approach.
They focus on free cash flow, which they regard as earnings before interest, taxes, depreciation and amortization (EBITDA), minus the capital required to increase the size of the business. The assumption is that rising cash flows are often a precursor to earnings upgrades. The reverse also holds.
Gabelli distinguishes himself from momentum players by not trading on the differential between forecast and eventual data. There is one more vital factor needed to turn a stock into a buy ' a catalyst ' something to drive the company back into market favour.
However, Gabelli is not interested in waiting too long for his stocks to come good and tries to look for events that will happen within two years that will cause the shift in valuation. This catalyst can be a variety of different things but may include industry consolidation and regulatory change, or be a factor specific to the company, such as share buybacks, change of ownership or the sale or purchase of a division of the company.
Gabelli's stated intention is to run the fund in such a way as to be 10% above the rate of inflation.
Despite the predominance of growth and technology stocks over the recent past, the fund has achieved double-digit growth in six out of the past seven 12-month periods, the exception being the past 12 months, in which all equity markets have suffered.
Gabelli says: 'With corporate profits sliding more than 67% in the first half of 2001, and under the bursting bubbles of the tech/internet/telecoms mania, the capital expenditure bubble and the dollar's strength, markets collapsed.'
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till