At a time when investors are favoring exchange-traded funds over equity mutual funds, it’s not easy starting a new mutual fund. GoodHaven Fund (ticker: GOODX) ranks as one of the industry’s better start-ups. It had assets of $476 million at the end of June, up from $224 million in late 2012, buoyed by strong inflows.

GoodHaven Fund

Its managers, Larry Pitkowsky and Keith Trauner, worked for about a decade with Bruce Berkowitz, the manager of the Fairholme Fund, before striking out on their own and starting GoodHaven in April 2011. The value-oriented fund has beaten the market since inception, gaining 40.8% through the end of May, versus a 28.7% total return on the Standard & Poor’s 500. Pitkowsky and Trauner are buy-and-hold investors who aren’t afraid of controversy. Three of their largest holdings are Hewlett-Packard (HPQ), Microsoft (MSFT) and Barrick Gold (ABX). Their performance is particularly impressive because they’ve carried a large cash position, which recently totaled about a third of assets.

Barron’s has interviewed the managers before (see Interview, “Digging Up Undervalued Stocks,” Aug. 13, 2011; Profile, “Fishing for Value,” March 30). In excerpts of a recent conversation, below, the pair discuss some of their top picks now as well as their concentrated investment style and their debt to Warren Buffett. Your cash holdings at the end of May stood at 33% of assets. That’s one of the highest percentages among equity mutual funds. Why?

Pitkowsky: When we find things to do that are compelling, we draw down the cash, and if we find less compelling things to do, the cash builds. It’s also affected by people investing in the fund.

Q: Your largest equity holding remains Hewlett-Packard. What’s your view now?

Trauner: Our initial thought on HP is still intact. We felt the company had the ability to generate a lot of cash, and the management change that brought in Meg Whitman as CEO was positive. We felt that if she could stabilize the business that we would make good money, and if she could actually get HP to the point where it starts to grow again, even in the single digits, we’d make a lot of money.

H/T Brendan Conway

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