Timothy O'Brien says he revived the $300 million Evergreen Utility & Telecommunications Fund by knowing when to sell stocks. He decided this year...

Share story

Timothy O’Brien says he revived the $300 million Evergreen Utility & Telecommunications Fund by knowing when to sell stocks.

He decided this year to reduce his stakes in Verizon Communications and SBC Communications after they unveiled plans to make acquisitions.

The Evergreen fund rose 30 percent in the past 12 months, outperforming the 3.3 percent gain of the Standard & Poor’s Diversified Telecommunications Services Index and the 6.4 percent advance of the S&P 500 index.

Most Read Stories

Unlimited Digital Access. $1 for 4 weeks

“As merger mania was heating up in the telecommunications space, we were concerned that the Bell companies were more likely to be the buyers than the sellers,” O’Brien said. “Typically, you want to own the sellers.”

O’Brien took over the Evergreen fund in April 2002 after it lost almost 40 percent of value in the previous two years. Since then, the fund rose at an annual rate of 15 percent, tripling the average 5 percent gain of competing funds, according to data compiled by Bloomberg.

He “really turned around the fund’s performance,” said Andrew Gogerty, an analyst at Morningstar, an industry-research firm. “Before that, it wasn’t a very strong-performing fund.”

“Sell discipline”

O’Brien has brought a “sell discipline” to the fund, Gogerty said. “He won’t hold on to a falling stock to see if it will turn over. He will be the first one to admit when he makes a mistake.”

O’Brien’s willingness to sell is reflected in the decisions to scale back positions in New York-based Verizon, SBC of San Antonio and Atlanta-based BellSouth — companies whose shares are down or little changed in the past year.

O’Brien has about 2 percent of his mutual fund’s assets in Verizon, SBC and BellSouth, down from as much as 3.5 percent at the start of the year.

Verizon plans to buy MCI of Ashburn, Va., for $6.75 billion, and SBC is acquiring AT&T of Bedminster, N.J., for $16 billion.

Atlanta-based Cingular Wireless, which is owned jointly by SBC and BellSouth, paid $41.3 billion to buy Redmond-based AT&T Wireless Services in October.

None of the transactions will provide an immediate boost to profits, O’Brien said. MCI emerged from the largest U.S. bankruptcy in history in April, and AT&T’s revenue fell for a 20th straight quarter in the final three months of last year.

O’Brien holds about 60 stocks, which account for about 90 percent of the fund’s investments. The rest of the assets are split between bonds and cash.

One of the fund’s best-performing stocks is its largest holding, TXU, Texas’ biggest power producer.

TXU shares almost tripled in the past year. Only Apple Computer has done better among companies in the S&P 500.

The Evergreen fund increased its stake in TXU in October 2002, a year in which the stock fell 66 percent as the company cut jobs and its dividend.

TXU Chief Executive Officer C. John Wilder was hired a year ago to improve the company’s finances. He has been selling assets and reducing the company’s debt.

TXU has been “a home run for us,” said O’Brien, who has degrees from the University of Massachusetts in Amherst and the University of Pennsylvania’s Wharton School in Philadelphia.

Before joining Evergreen, he oversaw similar funds for Eaton Vance and Gabelli Asset Management.

Leap Wireless

While O’Brien has reduced the fund’s positions in telecom companies, he has increased its wireless holdings.

He added to his position in Western Wireless during the third quarter and initiated one in Leap Wireless International in August.

“I wouldn’t call them household names,” O’Brien said.

Bellevue-based Western Wireless sells mobile-phone services in 19 Western states and benefits from operating in rural markets with fewer competitors.

In January, Alltel, the sixth-largest U.S. wireless company, agreed to buy it for $4.42 billion. Shares of Western Wireless gained 56 percent in the past year.

Leap Wireless, a company spun off from Qualcomm that sells unlimited local wireless calling services at a flat rate, emerged from Chapter 11 bankruptcy protection in August.

The San Diego-based company’s shares have risen 2.1 percent since then.

The company added a net 29,000 customers in the fourth quarter for a total gain of about 97,000 for the year.

“They’ve got a strong balance sheet,” O’Brien said. “They kind of fly underneath the radar.”

Exelon, created in a merger five years ago by utilities in Philadelphia and Chicago, is the fund’s second-largest investment. The owner of utilities has increased profit by cutting jobs and boosting sales from low-cost nuclear plants.

It agreed to buy Public Service Enterprise Group for $12.8 billion in December, the biggest utility acquisition in U.S. history. Exelon’s stock rose 33 percent in the past year.

“The company has been very sensible,” O’Brien said.