As a youngster, Marc Gabelli never spent a lot of time talking stocks with his famous father, mutual fund manager Mario Gabelli. But that's not to say he didn't learn a thing or two from Dad about managing money.
"My father is a great value investor," the younger Mr. Gabelli says. "So whenever I bought a pair of shoes, we'd have to go to five different shoe stores before I could buy anything."
This upbringing is serving him well. Now a portfolio manager with his father's firm, Gabelli Asset Management Inc., 31-year-old Marc is proving that there's more than one ace stock-picker in the Gabelli clan.
His $450 million Gabelli Global Interactive Couch Potato Fund gained a prodigious 116% last year. On the heels of 42% and 29% gains in 1997 and 1998, the fund now ranks as the top-performing global equity fund over the last three years, according to Lipper Inc.
Though Couch Potato had a lot of company in the triple-digit club last year -- well more than 100 funds returned 100% or more, vs. just six in 1998 -- Mr. Gabelli achieved his results with much less risk. The fund stayed away from overpriced Internet and technology stocks and received a better risk rating from Chicago fund tracker Morningstar Inc. than all but 28 of the triple-digit gainers.
"You have to give Marc credit for sticking to his discipline," says Morningstar analyst Christopher Traulsen. "He hasn't jumped all over the Internet, and that would have been the easiest thing in the world to do, especially with a fund that has `Interactive' in its name."
It's hard to quibble with Couch Potato's track record, but some observers have questioned how much credit Mr. Gabelli actually deserves. "The stickiest issue is trying to determine is how much of this is Marc and how much is the organization behind him," says Mr. Traulsen.
Second-generation fund managers have always had to answer to such doubters. Just ask the Davis Funds' Andrew and Christopher Davis, whose father and grandfather were among the best investors of their generations.
Marc Gabelli bristles at any suggestion that his father has his hands on Couch Potato's clicker. "I don't work with my father," Mr. Gabelli says.
People who know the Gabellis agree that Marc calls his own shots. "Marc has done an outstanding job in a very competitive area, but unfortunately a lot of people feel that just because someone is young, they can't have the necessary expertise or experience," says Victor Ugolyn, chairman of the Enterprise Group of Funds. "What they don't realize is that Marc has been exposed to the investment business his entire life."
The younger Mr. Gabelli's strategy has been to invest in media, entertainment and telecommunications companies, the stocks that give Couch Potato its unusual name. These three areas were all hot last year, but he outperformed the average fund in Morningstar's specialty communications category by more than 45 percentage points.
"It's done spectacularly well for me," says Rudy Polanski, an investment adviser with Westport (Conn.) Resources. "The fund provides access to a rapid growth area without taking on the enormous dot-com-related risks of other communications funds."
Mr. Gabelli is a devotee of his father's value-oriented investment style, which favors companies valued well below what a corporate acquirer might pay for them. But whereas Mario Gabelli has his Gabelli Asset and Gabelli Value funds positioned almost exclusively in U.S. stocks, two-thirds of Couch Potato's money is invested overseas. This requires Marc Gabelli to spend six months a year on the road, scouring the globe for investment ideas.
In 1998, for example, he started spending a lot of time in Japan, then out of favor with investors. Mr. Gabelli started plowing money into Japanese stocks he believed were undervalued -- companies like electronics giant Sony Corp., financial services venture capital firm Softbank Corp., and manufacturing and telecommunications conglomerate Kyocera Corp. Last year, these stocks were up 296%, 1,340%, and 255%, respectively.
Softbank was a somewhat atypical investment for Mr. Gabelli, given his distaste for Internet stocks. The company is one of the world's leading Internet investors, with large stakes in everything from E*Trade to Yahoo!.
"When we bought Softbank, the entire company was trading at less than the value of its public stake in Yahoo!," he says. "In essence, we were buying E*Trade and all the other businesses that Softbank has in its venture capital portfolio for absolutely nothing."
Despite the stellar results, Couch Potato has yet to catch fire with mutual fund investors. The fund picked up about $200 million in new sales last year, Mr. Gabelli says. While that's substantial, other members of the triple-digit club took in four or five times that amount.
Couch Potato's shortcomings seem to stem from the fund's name. Not only is Global Interactive Couch Potato Fund a mouthful, but "Interactive" gives the impression that Couch Potato is an Internet fund.
"The name is just too gimmicky," says Thomas Courtney, an investment banker who advises asset management companies. "When an investor is deciding what to do with his money, he doesn't want a fund that sounds like a joke."
Aware of these concerns, Gabelli Asset Management, based in Rye, N.Y., will soon rechristen Couch Potato the Gabelli Global Growth Fund. If the new name catches on, it could reinvigorate Gabelli's own stock. Despite a 24% increase in corporate profits during the first nine months of 1999, Gabelli stock now trades below its February 1999 initial public offering price of $17.50.
Gabelli has been dragged down by the underperformance of the entire asset management sector, but a more specific problem is the perception that the firm depends too much upon one man, Mario Gabelli. Continued good performance by Marc Gabelli and other Gabelli fund managers such as Howard Ward and Caesar Bryan would go a long way toward allaying these concerns.
"We think Gabelli has a deeper bench there than the market realizes," says Edward Barr, whose investment firm, E.S. Barr & Co., has been a big buyer of Gabelli stock. "So in our opinion, the stock price represents a significant discount to the intrinsic value of the company."
