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NICHOLAS FUND: Look elsewhere for value

BY ANDREW LECKEY | Tribune Media Services

April 27, 2008

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Is the Nicholas Fund worth owning?

- P.R., via e-mail

While it has staying power, it hasn't distinguished itself.

Albert Nicholas, who began his career in banking and still favors financial stocks, has run this low-cost fund since he founded it nearly 40 years ago.

Nicholas has avoided technology and energy, a strategy that hurt results in recent years. Some holdings such as Moody's and mortgage insurer MGIC Investment also experienced steep losses last year.

The $1.7-billion Nicholas Fund (NICSX) is down 5 percent over the past 12 months and has a three-year annualized return of 4 percent. Both results rank in the lowest one-third of large growth and value funds.

"We aren't too impressed with this fund and don't recommend it because it is nothing out of the ordinary and operates in a competitive category,'' said Greg Brown, analyst with Morningstar Inc. "Because Nicholas is conservative by nature, it doesn't surprise me his portfolio is generally holding up in times like this, but we still don't see a long-term edge.''

Nicholas favors stocks trading at a lower price-earnings ratio than the average stock of the S&P 500. Some of his contrarian bets have not panned out or have been slow to show results.

Nearly one-fourth of Nicholas Fund is in financial services. Largest stock holdings are Berkshire Hathaway A, Affiliated Managers, Kinder Morgan Management, Cardinal Health and O'Reilly Automotive.

This "no-load'' (no sales charge) fund requires a $500 minimum initial investment and has an annual expense ratio of 0.75 percent.