| Fund Company | Chou Associates Management Inc. |
| Fund Type | Global Small / Mid Cap Equity |
| Rating | B |
| Style | Value |
| Risk Level | Medium |
| Load Status | Front End |
| Manager | Francis Chou since October 1986 |
| MER | 1.86% |
| Code | CHO 100 |
| Minimum Investment | $5,000 |
Analysis: This all cap, go anywhere, global equity fund is managed using his high conviction, deep value approach. The process is fundamentally driven, that focuses on balance sheet strength, cash flows, management and future growth potential. Valuation is critical; Mr. Chou won’t even consider adding a position unless it is trading at a discount of at least 40% to his estimate of its intrinsic value.
He sticks to his beliefs and is not afraid to hold significant cash balances if no suitable investment opportunities are available or he feels that volatility is too high. He is not afraid to take big bets on stocks he feels are cheap. For example, in March, his largest holding was Berkshire Hathaway, which made up more than 10% of the fund. The next largest holdings, Dell and Sears, both had weightings well above 7%, and in fact, the top ten made up just less than 60% of the fund. When evaluating a stock, he takes a long term view, putting less emphasis on shorter term market factors. As a result, portfolio turnover tends to be low. For the most recent five year period, turnover has been less than 20%.
There are risks with this fund. Along with the volatility, nearly one quarter of the fund is held by Fairfax Financial. If they were to redeem their holdings, the manager would have to raise cash, which could have a negative impact on the fund. Further, this is largely a one man show. If anything were to happen to Francis Chou, the funds would be negatively affected until a suitable replacement were found.
We like this fund but would be reluctant to recommend it as a core holding. In our opinion, it is best used as a component in a well-diversified portfolio. Our rationale is based on two factors. First is the key person risk. Second is the deep value style that is employed. While we believe that investors will be rewarded over the long term, there is a good chance of high volatility in the short term. It is not highly correlated to the major indices, so it may zig when other funds zag. Still, over the long term, I believe that it has the potential to deliver above average returns with above average volatility.