Concentrated investment funds are inherently risky, but that is why a good manager may make all the difference, according to a recent piece in Barron’s. The article profiles several concentrated funds, usually holding less than 35 stocks at any given time (and thus not simply mirroring an index), that have achieved relatively low risk and better-than-benchmark returns. Such funds often fall out of favor with investors during a bull market: “We always lose assets at market peaks,” says Yacktman Focused’s Stephen Yacktman, “but we don’t change our style to influence investor deposit flows.” The fund holds 24 stocks and beat 99% of its peers over the last 10 years, although it trails 75% of them over the last five. Zeke Ashton of Centaur Total Return, another conservative concentrated fund, notes, “our strategy is designed for risk-averse investors who can’t live on bond income.” He continues: “The money won’t come in [from investors] until the market is down 25% and we’re down 8%. Both of the above-mentioned managers hold significant cash reserves presently and Yacktman, at least, “often buys aggressively in bear markets.” Bruno Paulson, who co-manages the Morgan Stanley Global Franchise Portfolio, which beat 97% of its peers in the past five years and 99% over the last 10, says “we seek to invest in companies that are very profitable and have high returns on unlevered capital with the aim that they stay that way.” The fund usually holds 25 to 35 stocks. The Parnassus Endeavor fund, managed by Jerome Dodson, embraces socially responsible investment screens that provide some protection from the kind of problems that have haunted the well-known concentrated fund Sequoia. Sequoia fell due to over-investment in a company with significant problems. Ira Rothberg, co-manager of Hennessy Focus fund, notes that his firm studied failures among concentrated funds and found: “the common combination of factors was that they had an individual position that was way too large or they dramatically overinvested in a particular industry.”