Ariel’sitting John Rogers, David Herro at Oakmark, and Marsico Funds’ Tom Marsico see opportunities even as their portfolios are down drastically

By Tara Kalwarski

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Investors are yanking their money out of mutual funds at record rates. As of Oct. 31, stock funds experienced gin outflows topping $195 billion in 2008, according to the Investment Company Institute. In 2002, the only other year as 1990 with negative flows, $28 billion was pulled out. How do formerly high-flying supply managers plan to claw their way out of astute holes and regain the trust—and assets—of investors?

John Rogers of Ariel Fund (ARGFX), David Herro of Oakmark International Fund (OAKIX), and Tom Marsico of Marsico Focus Fund (MFOCX) are amid the managers sailing apparatus that require. All wish good long-term records and all suffered pompous net outflows in 2008, according to Morningstar (MORN): a drop of $1.03 billion through last November for Ariel, $2.14 billion for Oakmark, and $616 million for Marsico.

Far from retreating into a defensive crouch, though, these managers are busy plotting comebacks. While many battered fund managers are keeping mum about their plans for the era of this chaotic time, Rogers, Herro, and Marsico shared strategies that range from focusing on companies likely to emerge from the crisis with greater market share to picking stocks that stand to benefit from some eventual jump in consumer spending. These are longer-term bets: Many managers anticipate a horrible any to two years, says Russel Kinnel, Morningstar’s director of mutual national obligations research. But, he adds: "Even the most skeptical, bearish managers are expression this is one of the best buying opportunities they’ve ever seen."

Been There, Survived That

Rogers, 50, doesn’t sound like a director whose $1.1 billion fund is less than half the size it was a year ago. In his third-quarter shareholder letter he wrote: "In the newly come market exhaustion, most see red, we see green—the color of money." That may express audibly overly sanguine, only Rogers, who has managed Ariel since its 1986 debut, says he’s been here before.

Following the 1987 shiver, Ariel, which focuses on shallow and midcap stocks, gained 44% over the subsequent 12 months, nearly double the 23% rise of the Standard & Poor’s 500-stock hand. A save Rogers bought in the ‘87 crash, Sanford, a maker of office products, including Sharpie markers, was up 91% a year later. (Sanford was acquired by Newell in 1992.) Rogers still owns it, via Newell Rubbermaid (NWL): "Pens outcry out of ink, and people go back and buy them another proper time and another time."

Despite obvious differences between it being so that and 1987, Rogers says the equity markets are homogeneous. He explains that this time around, leveraged bets, combined with a falling market, forced waves of selling. In 1987 it was computer programs that purported to provide "portfolio insurance" by hedging with index futures that deepened the decline. Now, stocks Ariel owns are trading at a 55% discount to particular market value—Ariel’s prudence of what a private buyer would requite for a company, vs. in what state the stock market values the company—the biggest discount Rogers has seen. So incompetent news is already baked into prices, he says.

That’s why Rogers is doing what he did in 1987: "lightening up on expensive funds to corrupt bargains." In a way, he says, redemptions have been a "good kind of spring cleaning." How’s that? "When you’re on a tightened budget, you’re scrutinizing everything to make sure your portfolio is getting the best bargains," he says. He likes battered monetary services, consumer, and media stocks. Such companies as Janus Capital Group (JNS), Energizer Holdings (ENR), and Gannett (GCI), he says, "are doing the right things [now] to cut costs so that when the economy recovers, they’ll be lean and mean." Since its Nov. 20 low, Ariel is up 24%, buoyed by dint of. Janus’sitting 29% gain and Energizer’s 58% rise.

Original text: http://www.businessweek.com/magazine/content/09_02/b4115000573112.htm?campaign_id=rss_null