Mutual-fund spotlight | Ivy Cundhill fund managers look for trouble

Hhu Ng, a co-manager of the Ivy Cundill Global Value Fund, says he started buying shares of Takefuji after the company's founder was charged with wiretapping.

When Takefuji's president resigned, Ng bought more stock.

Shares of Takefuji, Japan's fourth-largest consumer-finance company, have climbed 35 percent since founder Yasuo Takei was indicted in December 2003. The stock had slid to a six-year low.

"We look for scandals and things that just bombed out," Ng said. "There are always reasons why stocks are cheap. We are trying to find a short-term mispriced situation."

Through May 18, the Ivy Cundill fund was up 0.5 percent this year, compared with a 1.9 percent decline of the benchmark Morgan Stanley Capital International World Index.

The fund ranks 12th of 206 U.S. mutual funds that buy shares of companies based elsewhere and considered cheap relative to financial yardsticks such as earnings.

The Third Avenue Value Fund, run by Martin Whitman in New York, is the top performer, gaining 4.4 percent.

Over the past three years, the Ivy Cundill fund has advanced at an annual rate of 9 percent, outperforming the 6.8 percent gain of its benchmark index.

MCI, Ivy Cundill's largest holding, has returned 80 percent since Ng started buying shares in April 2004.

At that time, the No. 2 U.S. long-distance telephone company had forecast a net loss for the year.

The company recovered and became the target of a bidding war between Verizon Communications and Qwest Communications International.

Assets of the $490 million Ivy Cundill fund increased sevenfold last year.

Ng said it's getting harder to find undervalued stocks. He had 30 percent of the fund's assets in cash at the end of March, up from about 10 percent in 2003.

"We aren't going to invest for the sake of being fully invested," Ng said.

"Funds like this tend to hold up well in bear markets but lag in bull markets," when so-called growth funds tend to perform better, said David Kathman, an analyst at Morningstar, a mutual-fund research firm in Chicago.

Value investing poses risks because some stocks are so battered that they have little chance of recovering quickly, Kathman said.

Ng manages the Ivy Cundill fund with Peter Cundill, who started it in April 2000.

Ng and Cundill look for companies whose share prices are less than two-thirds of adjusted book value, which is based on the value of assets such as factories and equipment, or the value of investments. The fund owns about 30 stocks.