Mutual Fund Spotlight: The World Their Oyster

"Even if the stock price tripled last year, we are still keen on the company and so we are holding onto it," Gissen says. "We believe the company is making excellent progress and we are confident that it will continue to do well and reward our shareholders."

Holding onto companies and even increasing exposure to them until they are deemed to be at fair value is a common practice for the Encompass Fund. The team evaluates each company individually based on its business plans, the quality of its management team, and the state of its balance sheet, and they set neither a target price for the stock nor a specific time to sell the stock, Gissen says. "Because so much can happen to these companies, we continue to monitor them until we feel they have reached fair value," he says.

Of course, things don't always work out the way that Gissen and Berol would like them to, and in the last half of 2008, stocks across the board were slammed by the financial meltdown, which made things tough for the Encompass Fund. At the end of that year, the partners carefully reviewed all their holdings, selling off those they thought would not regain ground in 2009, but they were a little late getting out of a couple of names, Berol admits, in particular REITs and some specialty finance companies that had invested in mortgage assets.

"We were still in them when they were going down but we held on because we thought that they would improve and that the situation was not as bad for their industry as it actually turned out to be," he says. "If we had gotten rid of those names sooner, we would have done better."

Considering Real Estate

Nevertheless, Encompass did hold onto one REIT, Ashford Hospitality, a hotel REIT that went down during the crisis and then came back up. And now, the fund is looking carefully at opportunities in real estate, particularly in commercial real estate, which Gissen and Berol believe is a sector that is currently undervalued and has great potential.

In addition to sticking with its focus on metals (precious and industrial) and mining companies (particularly the more junior, lesser-known players), Gissen and Berol are also looking to increase their exposure to healthcare companies, partly because demographics promise great opportunity, Gissen says, but also because the sector, in their opinion, is an innovative and rapidly growing area.

Encompass has been in healthcare since 2006, when the fund debuted, and one important holding that has done well by the fund all along and promises to deliver even more is Delcath Systems, a leader in the treatment of localized cancer that pioneered a promising treatment to shrink tumors in the liver.

"We became familiar with Delcath Systems even before the fund came into existence," Gissen says. "We invested in it for some of our individual accounts and we have added to it through the years."

A few weeks ago, though, Delcath became one of Encompass's top five positions because the company announced positive results on the Phase 3 clinical trial of its system, thereby shooting the stock price up from eight cents a share to 15 cents.

"We felt that Delcath had not been fairly valued and had not been well understood by Wall Street," Gissen says. "Now, the market has recognized it, our investors have been rewarded, and our return has been five times more than what we invested."

There are about 50 stocks in the Encompass Fund, which is on the high side compared to the past, Berol says. The duo, who work with two other highly skilled investment professionals, manage money for a number of celebrity clients like members of the Los Angeles-based rock band Counting Crows. But Berol and Gissen are also keen to have regular folk benefit from their strategy, so about a year ago, they dropped their initial investment minimum from $10,000 to $5,000.

Both Gissen and Berol–and their wives, they point out, which no doubt adds to the pressure to remain a top performer–are invested in the Encompass Fund. Gissen founded his investment advisory firm, Malcolm H. Gissen & Associates in 1985, and has been managing separate accounts since 1999. Berol has been an investment manager in San Francisco since 1982 and became Malcolm H. Gissen & Associates' chief investment officer in 2000. He also has his own investment firm, BL/SH Financial.