Tuesday, December 30, 2003

The good steward


Thriving fund his legacy

By James McNair
The Cincinnati Enquirer

Peter Lynch went on to become a celebrity investment guru. John Bogle remains fairly conspicuous on the stock market sidelines. And Bill Ledwin? Well, who's Bill Ledwin?

The three men can arguably be classified as peers. Lynch became famous for leading what was the world's biggest mutual fund, Fidelity Magellan, to a 10 percent average annual besting of the Standard & Poor's 500 Index from 1977 to his retirement in 1990. Bogle, the retired former CEO of The Vanguard Group, proved that a fund mirroring the S&P 500's stocks can outperform almost nine out of 10 funds while keeping fees to a minimum.

On Saturday, Ledwin will leave a similar legacy when he retires as president of Fort Washington Investment Advisors, the investing arm of Cincinnati's Western & Southern Financial Group. Since 1991, when Western & Southern detached Ledwin to set up a money management operation, his portfolios have topped the S&P 500 in 10 of 12 years, beating it by an average annual margin of 6.8 percent.

Ledwin, 66, isn't tinkering with chump change. At last count, Fort Washington had $26 billion under management, about three quarters of it belonging to his paymaster, Western & Southern. Among the 753 money management firms whose sizes were ranked by Pensions & Investments magazine, Fort Washington stood at 105.

The rest of its assets belong primarily to those with at least $500 million to invest - pension funds, foundations and endowment funds.

"We're very pleased with our relationship with Fort Washington," said John Gillespie, executive director of the Medical Center Fund of Cincinnati, which has about $15 million under management at the firm. "What we like about these guys is that they give us better returns over time than the Barra Value Index with less risk."

What works

Unfortunately for the quick-buck crowd, Ledwin won't let on to having any can't-miss, proprietary investing techniques. What he does give up could have been drawn from any issue of Money or Kiplinger's magazines: Buy undervalued stocks, recognize long-term growth potential, know when to sell. Feeding into that is Fort Washington's real strength, a 70-person organization that employs old-fashioned investment research and a collegial style of decision-making.

"What outperformance really boils down to is stock selection," Ledwin said. "You need to pick the right stocks and you need to buy them at the right time - and hopefully sell them at the right time."

Fort Washington puts its clients' money into everything from money markets and bonds to stocks and venture capital funds. But, more than anything, stock-picking separates Fort Washington from the pack.

"Styles have a lot to do with it," Ledwin said. "Each of our managers has a style that he looks for, say undervalued stocks and trying to determine why it's undervalued. Did the whole industry go down or was there an accounting problem? We'll do an analysis and if we conclude that there's a catalyst that'll move it back to a market valuation, we'll buy it."

Perhaps that explains why Fort Washington has been upping its wager on depressed issues such as McDonald's, Merck and Ohio Casualty. Otherwise, the company's holdings, as listed in its latest SEC filing, represent a spectrum of stocks that have grown through the market downturn or are poised to rebound with the economy.

"You're always looking for stocks that are going to create earnings momentum better than the market," Ledwin said. "You can buy them at levels that look high, but if they keep producing earnings, the stock is going to rise." Among Fort Washington's biggest holdings: McDonalds - which has doubled in price since March - Home Depot, Pfizer, Hewlett Packard, Kimberly Clark, Citigroup, Masco Corp., Bank of America and Ingersoll-Rand. Among its significant regional holdings: Ohio Casualty, Bank One, Fifth Third Bancorp, Procter & Gamble, Federated Department Stores and Cincinnati Financial.

Stay alert, move fast

As every investor has learned in recent years, the stock market has become a minefield full of seemingly solid companies falling from grace. Implosions such as Enron, MCI WorldCom, Adelphia, Sunbeam, Freddie Mac and now the Italian food company Parmalat take an immediate toll on portfolios. That didn't happen when Ledwin first became a money manager.

"When a company got in trouble, they were first given the benefit of the doubt by investors, and the shares might have gone down 10 percent," he said. "Now, the moment something comes down - bam! - investors short the company and the stock drops 40 to 50 percent in one day. Your best bet is to get out. There's no time to research it."

Ledwin joined Western & Southern in 1959 right out of college as an employee in its computer department and moved into its investment operations in 1970. He never worked for anyone else during the last 44 years, and the distance from his office on Fourth Street downtown is all of half a block from where his career started.

Although he is retiring, Ledwin will continue serving on Fort Washington's investment committees. During the course of his final year as an employee, Ledwin learned just how valuable he was to the company. Western & Southern replaced him not with one person, but with two.

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E-mail jmcnair@enquirer.com




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