Better Know a Stock Picker

Welcome, Fools, to part 38 of our several-thousand-part series, "Better Know a Stock Picker," which is loosely, but not too loosely, based on Stephen Colbert's "Better Know a District" from The Colbert Report.

Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?

Keeley Small Cap Value (KSCVX)

Expense Ratio

1.39%

Fund Size

$3.5 bil.

1-Year Return*

3.08%

5-Year Return*

17.69%

10-Year Return*

15.67%

*Return includes impact of load. As of 12/31/2006.
Sources: Keeley Funds, Morningstar

Top 5 holdings

Company

% of Assets

Terex Corp. (NYSE:TEX)

1.17%

Allegheny Technologies (NYSE:ATI)

1.09%

Orient-Express Hotels (NYSE:OEH)

1.01%

Texas Industries (NYSE:TXI)

1.01%

Foster Wheeler (NASDAQ:FWLT)

0.96%

Sources: Keeley Funds. As of 12/31/2006.

Meet John Keeley Jr.
The fightin' team at Keeley Small Cap Value is led by firm founder John Keeley Jr., who was recently named one the best of the best fund managers by Standard & Poor's and BusinessWeek.

Surprised? Don't be. Keeley's superstantial stock picking has led to an average annual eight-point drubbing of the S&P 500 over the last decade. Eat that, Wall Street.

And I do mean sidle up. Keeley sticks it to the stockinistas by obsessing over bargains. As he told BusinessWeek recently, "I have very few other interests. I don't even consider it work." No wonder he's crushing the market. Most brokers barely work 9-to-5 let alone 24/7.

But success isn't just a product of effort for the 66-year-old Keeley. He's willing to zig when others zag. Consider his purchase of Vail Resorts (NYSE: MTN  ) . It looks good on paper -- Vail reported a 23% boost in its recently completed second quarter. Trouble is, the Sith Lords aren't buying it. Nearly 9% of the available shares are sold short, according to Yahoo! Finance.

How he invests
Don't expect Keeley to care. He knows that going against the grain is what leads to profits. Often, that has him investing in deep value special situations, such as spin-offs and restructurings. But his forte remains cheap small-cap stocks like Vail.

Smart. Researchers Fama and French found that small-cap value stocks are, by historical standards, the best performers. In fact, the results weren't even close. That's why I'm not surprised to see Keeley investing in Vail Resorts alongside Bill Mann, who, with Tom Gardner, leads our market-beating Hidden Gems small-cap service.

But I digress. Keeley's supergravitastic treatment of the stock-picking process is what really sets him apart. Quoting one last time from BusinessWeek, "I intend to pass on to my eternal reward slumped over a Quotron terminal." Now that's commitment.

Is this fund for you?
Could Keeley be the next Peter Lynch? Don't bet on it. As great as his returns are, the fund's price stinks. Unlike Fidelity Magellan, now or in Lynch's day, Keeley Small Cap Value charges a 4.5% front-end load and a princely 1.39% in annual expenses. I wouldn't pay that with your money.

Fortunately, neither you nor I need to. There are dozens of remarkable small-cap funds available that charge no loads and minimal fees. One such fund, which charges just 0.77% in annual expenses, has beaten its benchmark by more than 26% since joining the Motley Fool Champion Funds portfolio in the January 2005 issue. (Want a closer look at each of the champs? Click here to get 30 days of free access to the service.)

And that's today's profile. See you back here next week, fund nation. Good night.

For more Foolish coverage of the small-cap superstars:

  • Chuck Akre's poker face loots the market every time.
  • Will Kevin O'Boyle's eight years of 22% annual returns translate to his newly minted Presidio Fund?
  • Bob Rodriguez, a Left Coaster, keeps as far from Wall Street as he can. Yet he still trounces the market.

Think you can't beat the market with funds? Think again! The selections in Shannon Zimmerman's Motley Fool Champion Funds portfolio are up an average of 31% vs. just 18% for their comparable benchmarks. Ask us for an all-access pass to get an unfettered look at all of Shannon's picks, manager interviews, and model portfolios. Go ahead; it's free for 30 days and there's no obligation to subscribe.

Fool contributor Tim Beyers, who is ranked 731 out of more than 25,000 in our Motley Fool CAPS investor intelligence database, is a regular viewer of The Colbert Report. (Stay the course.) Tim didn't own shares in any of the companies mentioned in this article at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on mutual funds, Foolishness, and investing in general may be found in his blog. Vail Resorts is a Hidden Gems pick. The Motley Fool's disclosure policy is always championship caliber.


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