Where to Invest in 2011: Smead Value Fund’s Picks

Fox Business News interviewed Smead Value Fund’s Bill Smead and asked him the question “where to invest in 2011“.

Smead Value Fund (SMVLX) is an above average mutual fund, probably with a marginally positive alpha. Previously, we at Insider Monkey analyzed Lakonishok’s LSV Value Equity Fund (LSVEX) and found that it had about 1 percentage points in annual alpha. You can see from the attached graph that SMVLX closely follows LSVEX and their three year returns were almost identical. This graph shows that value investing is a pretty straightforward strategy that can be replicated easily. That’s one of the reasons why Insider Monkey uses Carhart’s four factor model to calculate alpha and beta. This methodology adjusts for value investing, so that we don’t reward portfolio managers for a strategy that can be implemented cheaply in any fund.

Fund managers try to beat their investment styles by a few basis points by giving a higher weight to their highest conviction purchases. Smead Value Fund’s Bill Smead probably follows the same strategy and his alpha is a result of this. That’s why we decided to cover his three high conviction stock picks for investors who are curious about where to invest in 2011. Bill Smead likes Merck & Co (MRK), Wells Fargo (WFC), and Abbott Labs (ABT). Mohnish Pabrai has Wells Fargo in his portfolio as well. See here: