A choice fund

Selected American Shares is a mutual fund managed by Christopher Davis and his father, Shelby Davis. It is a mutual fund I would highly recommend to most small investors looking for a solid core holding to include in their diversified fund portfolios, for a number of excellent reasons.

Selected American Shares is a no load fund; no sales or redemption charges are in place. Every dollar you contribute is invested for you. Not a single cent of your investment is allocated toward hefty sales commissions. Except for the below average expense ratio, which is less than one percent of invested assets, every dollar that you invest works for you, constantly adding toward your cumulative investment return.

SLASX offers low minimum and subsequent investments. A taxable account can be opened for a minimum initial investment of $1,000, with as little as $25 in minimum subsequent investments thereafter. Individual Retirement Accounts may be opened for even less: $250 and $25 thereafter.

At twenty percent, the fund’s portfolio turnover rate is quite low, substantially below average. This means that the fund selects securities very meticulously, so that once a purchase decision is made, the stock is held for the long term, thereby minimizing brokerage expenses and contributing to maximum tax efficiency, all of which only serves to keep expenses down and boost investment returns.

The fund is conservatively managed. It does not deal in option or futures speculation. It does not try to time the market or make predictions concerning matters which traditionally have been the dubious province of mystics and fortune tellers. The Davis family fund management readily acknowledges that it cannot possibly predict interest rates, currency fluctuations, market direction, or any other effect for which there may be multiple and complex causes. The fund, in short, does not gamble with its shareholders’ assets. It is just as concerned about risk and potential losses (downside) as it is about maximum investment returns (the potential upside).

The fund also has an appealing value investment approach, one somewhat similar to that of legendary investor Warren Buffet. This means that the fund’s portfolio management is careful not to pay too dear a price for a growing business. The intention is to purchase stock at a discount to its intrinsic worth; in other words, to pay less than what the stock is actually worth, in terms of its earnings and assets, as measured by its price-earnings ratio and book value, while still paying attention to the company’s projected growth rate.

Selected American Shares’ performance is significantly above average; in fact, it is one of the best performing funds in its large capitalization, blue-chip value category. Its investment performance matches (and in some cases even exceeds) that of the Standard & Poor 500. Over a five-year period, the fund racked up a formidable 26 percent average annual return.

The Davis family has more than $600 million of their own assets invested in their family-operated mutual funds. The Selected Funds’–employees and portfolio managers put their own money at risk–right along with their shareholders.

Spanning fully three generations of investors, the Davis family has demonstrated a proven history of investment stability, through bull (up) and bear (down) markets alike. Chris Davis, the youngest member of the family, barely 35 years old, has successfully managed Selected American Shares for the past five years. Given the fairly frequent employee turnover of corporate mutual funds, it is certainly very reassuring to know that Chris Davis should be consistently managing Selected American Shares for many more years to come, using his family’s successful approach. For young investors looking for portfolio management stability, this should be very welcome news indeed.

Objective factors should completely dominate any decision to add a holding to one’s fund portfolio. Slick advertising should play no role in the decision to buy. In the case of mutual funds, massive advertising should be discouraging, since it would tend to indicate a wasteful extravagance that would only drive up costs and impede a fund’s overall returns. A fund’s outstanding performance, proven history, low expenses, sound management and intelligent value approach should be allowed to speak for itself.

Selected American Shares seems to speak with credibility. Which was one of the reasons I included it in my own retirement portfolio.