While Wall Street pounds the Detroit automakers and their suppliers, a little-known California investment firm is loading up with beaten-down supplier shares.
Dimensional Fund Advisors Inc. disclosed last week that it has acquired more than 5 percent of the stock of each of four domestic parts suppliers: Visteon Corp., American Axle & Manufacturing Holdings Inc., Standard Motor Products Inc. and Dura Automotive Systems Inc.
Dimensional, of Santa Monica, Calif., had accumulated a total of 13.1 million shares valued at a combined $118.2 million for the four companies as of Dec. 31, 2005, according to Securities and Exchange Commission filings. The shares were worth a combined total of about $114.5 million last week.
Dimensional also recently jettisoned the last of the stock it owned in Collins & Aikman Corp. and Amcast International. The two companies are in Chapter 11 reorganization, and their shares are trading for pennies. As of Dec. 31, the value of Dimensional's 742,000 shares of Collins & Aikman was $47,000.
Dimensional, unlike corporate raiders and hedge funds, is not interested in influencing management at target companies. Instead, it buys into small companies whose shares are selling at low prices in relation to such factors as book value, says spokesman Weston Wellington.
Dimensional is a giant investment fund with $90 billion under management. It has a position of at least 5 percent in more than 500 U.S. companies. It is backed by pension funds and other giant investors.
The firm invests in companies with small capitalizations, a measure of total shares multiplied by the price of the shares. Worsening sales at General Motors and Ford Motor Co. have depressed supplier share prices even at solid companies.
Dimensional focuses on so-called small-cap companies because it sees them as having the best risk-return ratio among public companies.
Asked about the sector's risk to his investors, Wellington says the firm's strategy offers "no free lunch."
Dimensional has ties to some big names in academia. Its top-drawer talent includes the University of Chicago's Eugene Fama and Stanford University's Myron Scholes, co-author of the Black-Scholes model, a mathematical formula used by Wall Street to measure executive compensation.
You may e-mail Robert Sherefkin at [email protected]
You may e-mail Dave Barkholz at [email protected]