John Buckingham has almost 10 percent of his $256 million Al Frank Fund invested in nine of the 10 biggest U.S. home builders. Buckingham says speculation about...
John Buckingham has almost 10 percent of his $256 million Al Frank Fund invested in nine of the 10 biggest U.S. home builders. Buckingham says speculation about a housing bubble doesn’t concern him.
“We still like the home builders and we like the bubble talk too,” Buckingham said in an interview from his office in Laguna Beach, Calif. “The second we stop hearing about a bubble is when we start to worry.”
Investors’ speculation about a potential slowdown in home sales has kept stock prices “extremely low” relative to financial yardsticks such as earnings, he said.
Shares of Beazer Homes USA, the fund’s largest stake in a home builder, are trading for eight times its estimated profit for the next 12 months, half the multiple for stocks in the Standard & Poor’s 500 Index.
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Buckingham’s mutual fund climbed 30 percent during the past 12 months, as of Aug. 3, almost double the gain of competing funds that concentrate investments in stocks with low price-to-sales and price-to-earnings ratios.
The fund advanced at an annual rate of 29 percent in the past three years, exceeding the 15 percent advance of the S&P 500.
Along with Beazer Homes, the Al Frank Fund holds shares in KB Home and D.R. Horton, two best performers in the S&P 500 during the past year as home sales and property prices surged.
Of the industry’s 10 biggest home builders by market value, NVR is the only one that Buckingham doesn’t own.
For almost three decades, the fund has honed its strategy of buying so-called value stocks, making an exception for money-losing technology companies that have relatively large amounts of cash.
Al Frank Asset Management, founded in 1977 by the late Al Frank, discloses its stock picks in a monthly newsletter, the Prudent Speculator.
The Prudent Speculator’s recommendations have produced average annual returns of 19 percent during the past 25 years.
It’s the top performance of 13 newsletters that have been published continuously during that period, said Mark Hulbert, editor of the Hulbert Financial Digest of Annandale, Va.
“If you were to say the Prudent Speculator has beat all mutual funds in the past 25 years, it sounds better than saying he beat other newsletters, though it’s roughly the same thing,” said Hulbert, who tracks 180 newsletters.
The housing boom has worried some economists, most notably Federal Reserve Chairman Alan Greenspan, who said last month that home prices may be “unsustainable” in some regions of the U.S.
The central bank has raised its benchmark interest rate for the past 13 months, sparking concern an increase in mortgage rates may curb demand for homes and lead to a drop in property prices.