Portland Portfolio Managers Embrace The Unloved Contrarian Bias May Be Vestige Of Pioneer Spirit

This year is shaping up to make Portland a hotbed of value investors, a shining capital of value investment.

Just as the teenagers of Stumptown, as Portland is known locally, search the Salvation Army for grunge clothing, many of the city’s money managers make their living buying beat-up companies.

In the momentum-driven market of the last two years, digging among the dregs hasn’t been the place to make money. In 1997, the market is cooperating.

“Value holds up better in a soft market,” said Carl Marker, a principal at IMS Capital Management in Portland, with $35 million in assets. With the Standard & Poor’s 500 Index up 4 percent, and the Russell 2000 Index down about 7 percent, the market is looking pretty mushy.

Already this year, some of Portland’s managers have found themselves on the top of the heap. In the first quarter, value investor Crabbe Huson Group Inc.’s $381 million Special Fund was the best performing mid-cap stock fund, up 4.8 percent. The $7 million IMS Capital Value Fund topped the growth-and-income category in the first three months of the year, climbing 5.2 percent.

On first view, Portland might be considered a growth town. It is, after all, home to Nike Inc. and most of Intel Corp.’s employees, as well as the birthplace of grunge music (though teenagers in Seattle dispute this). Portland is also a hub of value investors.

With the exception of Columbia Management Co., Portland’s largest money manager, which offers a wide range of investment styles, the city’s best-known managers take the value approach: Crabbe Huson, Becker Capital Management, Qualivest Capital Management, IMS, Sigma Investment Management Co. and Ferguson, Wellman, Rudd, Purdy & Van Winkle Inc., which is a quantitative manager with a value bent.

A big reason that Portland’s growing band of money managers emphasize value investing, managers say, is that U.S. Bancorp, the biggest financial institution in the city, has been a value player since 1919.

Many of Portland’s money managers have spent time in the bank’s shiny, red-tinted tower that dominates the skyline above the Willamette River.

“In a middle-size city, it’s often the biggest bank in town that coddles and trains financial professionals,” said Tim Leach, president and chief investment officer at Qualivest Capital Management, the investment subsidiary of U.S. Bancorp.

A four-year stint at Qualivest is how John Abrahamson, chief investment officer at Sigma Investment Management, got into value investing. “It was a fertile training ground,” he said.

Abrahamson and his partner Bill Berg, also 43, manage about $20 million, which they invest in value-oriented mutual funds. Right now, they own the Dodge & Cox Stock Fund and the Babson Value Fund, among others.

Value managers thrive in smaller cities like Portland because they are out of the “roar” of places like New York and San Francisco, said Leach, and can take more time to “rip companies apart and understand them thoroughly.”

In a city where it can rain for 30 days straight in the winter, there is plenty of time to bear down on a balance sheet. The only distraction comes when the clouds part long enough to reveal the 11,235-foot Mount Hood 50 miles to the east. And there’s plenty of cafe latte to boost productivity - although some of the java jolt might be damped by the large number of microbreweries in the city.

Jim Crabbe, co-founder of Crabbe Huson, says Portland is a value town because many of its managers got into the business in the 1960s and had to endure the bear market of the 1970s.

Crabbe, 51, is betting on Oregon Steel Mill Inc., whose stock has dropped 4.4 percent this year, and transportation companies JB Hunt Transport Services Inc., Yellow Corp. and Airborne Freight Corp.

Carl Marker of IMS owns Rubbermaid Inc., which he hopes will rebound once the price of its raw materials fall because the company has been cutting costs. He also has money in WMX Technologies Inc., which is going back to its roots of collecting waste and recycling and trying to attract a top-flight chief executive. He also holds Chiquita Brands International Inc., which lost about half its market when Europe started giving preferential tariffs to bananas coming from the Caribbean. The World Trade Organization recently published a report saying Europe should stop that practice.

Marker, who was born and raised in Portland, expects that the city’s value bias may have its roots a lot farther back than the 1960s or even 1919.

“If you go back to the mid-1800s, when everyone was heading out West, those people were upstart contrarian types. That’s what value investing entails,” he said.