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Our Mutual Funds

Wednesday, Sep 1 1999
Dear Mr. Adams,

Thank you for your inquiry about our mutual funds. We have a number of exciting opportunities accommodating a range of financial strategies. Incorporated in 1974, our firm was one of the first to trade in restaurant securities. We are proud to offer to the individual a class of service that was previously available only to institutional investors. Here is an overview of our most popular funds.

The Carnelian Fund

This fund focuses on individual stocks in the luxury dining sector, chosen through bottom-up analysis. At present holdings include a number of pricey hotel restaurants; the fund normally consists of a diversified range of securities from senior producers with very large capitalization. It is a low-volatility investment for strong long-term growth. Carnelian is one of our top-performing funds, and continues to benefit from the growth of the global dining market. The manager of this fund, Phelps Whitney, B.Sc., CFA, keeps a rigid sell discipline: When the jacket-and-tie requirement of a restaurant is relaxed, white zinfandel appears on the wine list, or business principles are otherwise seen to deteriorate, our valuation measure initiates the sell process, and gain is promptly reinvested in a sounder, posher venture.

The Oceania Fund

This large-cap equity fund seeks long-term growth primarily through investment in innovative seafood restaurants. Current holdings include Aqua, Plouf, and Farallon. The Oceania Fund is managed by Sagal Mehta, MBA, CFA, who joined our firm in 1988 after 20 years' experience as a waiter. He has extensive knowledge of the San Francisco markets and a record of exceptional performance. Sagal uses both measures of the dining economy and growth parameters of the fishing industry to select securities. The fund is always at least 60 percent invested in stocks represented by the Bernardin 100, and is actively traded to minimize risk. This portfolio is a moderate, professionally managed means of investing in the exhilarating "fish stock" market.

The Fusion Fund

The asset mix of this portfolio focuses on diversification within individual asset allocations. Specifically, its focus is on European/Asian fusion restaurants and restaurants incorporating fusion techniques. This fund experienced poor performance in 1998 due to the catastrophic downturn in the wraps market, but the outlook is sanguine for 1999 and beyond. The Asian economies are beginning to show positive momentum once again, and the rise of the European Community is resulting in increased intercommunication and cross-propagation of food technologies, with possibilities of risky but potentially high-yield new industry sectors, like Japanese-British fusion. For these reasons the fund manager is very optimistic about the future of fusion cuisine, and believes that the next 18 months will show global demand resulting in strong growth.

The Developing Markets

("50 Percent") Fund

This is an aggressive-growth fund with holdings exclusively in restaurants under a year old. The manager of this portfolio seeks out restaurants with good growth prospects that, because of their youth, are trading at bargain valuation levels. Stocks are evaluated individually according to our "customer sentiment" model, which studies dining trends and diners' attitude. To wit, summer 1999 saw us buying stock in restaurants offering sweet corn dishes; as summer ends, we will be selling these holdings and reinvesting in restaurants featuring squash and other autumnal commodities. Emerging restaurants represent the fastest-growing sector of the San Francisco market, and this fund provides a unique opportunity for short-term performance. These stocks tend to grow fast and fail easily; for this reason, we sell when company growth slows to less than 20 percent or when the second chef leaves, whichever comes first.

The Asada Fund

In accordance with the needs of our smaller investors, this fund holds stock primarily in the taquerias of the Mission, which trade at discounts relative to restaurants elsewhere. These discounts are expected to shrink as the market recognizes the potential of the Mission. However, we believe there are still many overlooked small-capitalization stocks in the Mission and we continue to seek opportunities that meet our strict criteria: for example, places that are open late, after the bars close. At times the fund will also seek protection by taking short positions and using put options. The fund is well-diversified, with holdings in burrito producers, taco producers, ham-and-cheese-torta producers, Salvadoran produce markets, mobile chimichanga vendors, and other growth industries in the taqueria sector.

For a complete listing of our financial products and services, or for more information, please contact us at The fund is always at least 60 percent invested in stocks represented by the Bernardin 100.

About The Author

Paul Adams


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