Better Know a Fund Manager

Welcome, Fools, to part four of our several-thousand-part series, "Better Know a Fund Manager," 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?

Meet Chip Carlson
The fightin' team at Greenspring is led by Chip Carlson, who joined parent firm Corbyn Investment Management as an analyst and portfolio manager in 1983. Carlson was in his early 20s back then, a recent graduate of The Johns Hopkins University.

But he learned fast. Carlson earned the chartered financial analyst certification in 1986 and today is a member of the Baltimore Security Analysts Society. Apparently, he's put that knowledge to good use; Greenspring has outdistanced both the Russell 3000 and the S&P 500 over the past 10 years.

Better still, Carlson prefers stocks that "generate a lot of cash flow so they are more in control of their own destiny," as he told Motley Fool Champion Funds advisor Shannon Zimmerman in an interview in 2004.

How he invests
Carlson also likes hybrids. No, that's not a reference to the Toyota Prius or its ilk. I'm talking instead about Carlson's investing strategy. Greenspring, you see, is a hybrid fund. That means the fund can invest in almost anything, including bonds.

And he has. Rather than submit to a wag of the finger by Wall Street's stockinistas, Carlson had invested 43% of Greenspring's assets in bonds at the end of May, including some that sound, well, barely legal.

Take "busted convertibles," for example. Sounds awful, doesn't it? Trust me when I say it isn't. A busted convertible is a bond that can be converted into common stock. It becomes "busted" when the company's stock price falls below the conversion price.

At that point, many investors give up, figuring there's no value left. Not Carlson; that's when he swoops in. In most cases, Greenspring earns yields between 3% and 6% on these more speculative plays.

Sometimes, the payoff is even sweeter. For example, Greenspring acquired an interest in Akamai's (NASDAQ:AKAM) now-retired 5.5% convertible notes in 2004 but then sold them when the company announced a $56.6 million buyback last summer. Greenspring appears to have been paid 101.571% of principal plus accrued interest in the transaction, and that's after having collected at least a year's worth of interest at 5.5%. Nice.

3 Foolish questions
Of course, there must be more to Carlson that busted convertibles and low-flying small caps. So I recently asked him three Foolish questions:

• What do you do when you're not choosing investments? Turns out that Carlson was a lacrosse player at Johns Hopkins in the early '80s. And he still loves the game. In fact, this week he's coaching a Baltimore boys' team at a tournament in Vail, Colo.
• What kind of car do you drive? Carlson says he drives a four-year-old Chevy Suburban to "make room for all the (lacrosse) gear."
• Name a great book you read recently. And what was so darned great about it? Carlson says he recently enjoyed reading David McCullough's history of the American Revolution, 1776. Most interesting, he says, is that "Washington wouldn't commit to a battle that might risk significant loss of his key resources." That makes sense coming from a self-professed value investor.

Is this fund for you?
Time to get down to business. Should you invest with Carlson? Greenspring is the rare fund that combines small fees with a proven contrarian investing strategy. And that can lead to excellent returns when the market goes wacky, as it has recently.

Just remember that it's also risky to be contrarian, and many of Carlson's biggest bets are highly speculative. Among them are high-yielding convertibles issued by pharmaceutical firm Nektar Therapeutics (NASDAQ:NKTR) and semiconductor equipment maker Agere Systems (NYSE:AGR). Greenspring also holds significant positions in DigiInternational (NASDAQ:DGII) and Radyne (NASDAQ:RADN).

Of course, every one of these choices could prove to be wonderful investments, helping to keep Greenspring investors in the green. But, as history proves, they may also cut deep, leaving a bloody shade of red when compared with the S&P 500. Which will it be over the next two years? Time will tell. In the meantime, ask me for an all-access pass to Champion Funds to read all of Shannon's interview with Carlson. It's free for 30 days and includes unfettered access to all of Shannon's picks and reports. You're welcome.

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

Fool contributor Tim Beyers is a regular viewer of The Colbert Report. (Stay the course.) Tim owns shares of Akamai. You can find out what else is in Tim's portfolio by checking his Foolprofile. Akamai is a Rule Breakers recommendation. Radyne is a Hidden Gems pick. The Motley Fool has an ironclad disclosure policy.