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Seeking Long-Term Value in Big Firms

Digenan and his colleagues don't mind being out of step with market trends, said Arijit Dutta, an analyst at Chicago-based research firm Morningstar Inc. "When a sector goes down, that's when they pounce and look for opportunities," he said.

UBS's fund added to its holdings in banks, including J.P. Morgan Chase, the second-largest U.S. lender by assets, in the first quarter, as analysts questioned the company's prospects with rising rates and falling stock markets.

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The fund's biggest investment is Citigroup Inc., J.P. Morgan Chase's larger competitor. Top 10 holdings also include Morgan Stanley & Co., the world's largest securities firm, and Wells Fargo & Co., a U.S. bank that had record earnings in the first quarter.

J.P. Morgan Chase had record first-quarter profit, as investment-banking profit surged 30 percent, to $1.33 billion. Excluding merger and legal settlement costs, the bank earned 81 cents a share, beating analysts' average estimate of 69 cents.

The company's stock has fallen 7.5 percent this year, contributing to the UBS fund's 2.5 percent decline. J.P. Morgan Chase rose 6.2 percent last year after soaring 53 percent in 2003. The stock ended the week at $35.61 a share.

Digenan has co-managed the fund since 2001 alongside Leonard, UBS's deputy global head of equities, and Cole, head of research for North American core equities.

The managers dissuade their 30 analysts from paying attention to short-term measures of a stock's value, such as comparing price to earnings, Digenan said. The team examines industry trends, analyzes competitors and looks at individual companies' future earnings prospects to determine "if we were a cash buyer for the business, how much would we pay for it?" he said.

"You can mix up the noise with information, and we want to stay away from that," Digenan said. The fund holds 65 stocks.

Digenan earned a bachelor's degree from Marquette University in Milwaukee and a master's in taxation from DePaul University in Chicago. A certified public accountant, he worked for KPMG Peat Marwick before joining the firm now known as UBS Global Asset Management in 1993. The company's parent, UBS AG, is based in Zurich.

Digenan and his colleagues added to their stake in Albertson's Inc., the second-largest U.S. supermarket chain, after the company last month said 2005 profit would be less than analysts were estimating. Albertson's, of Boise, Idaho, has the eighth-worst analyst rating in the S&P 500, according to data compiled by Bloomberg. Shares of Albertson's are down 16 percent this year and closed Friday at $20.01.

The 2,500-store chain has been gaining market share faster than rivals since a 4 1/2-month strike in California ended in early 2004, Digenan said.

The fund has avoided most big pharmaceutical companies because of concerns about product development, expiring patents and a possible drop in drug prices with the introduction of the Medicare prescription-drug program next year, he said.

It does own shares of Allergan Inc., maker of the anti-wrinkle treatment Botox, which Digenan said provides good long-term prospects because of its new-drug pipeline. The Irvine, Calif., company said pharmaceutical sales would be as much as $2.2 billion this year, with about $840 million coming from sales of Botox.

As baby boomers age, "the one area [where] you do not have pricing pressure is in these vanity-type drugs that people are willing to pay for," Digenan said. Allergan shares ended the week at $74.08.


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