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Applying 'Sell Discipline' to the Baby Bells

Evergreen Manager Moves From Acquisitive Firms to Wireless and Utility Stocks

By Danielle Kost
Bloomberg News
Sunday, February 27, 2005; Page F04

Timothy O'Brien says he revived the $300 million Evergreen Utility & Telecommunications Fund by knowing when to sell stocks.

He decided this year to reduce his stakes in Verizon Communications Inc. and SBC Communications Inc. after they unveiled plans to make acquisitions. The Evergreen fund rose 30 percent in the past 12 months, outperforming the 3.3 percent gain of the Standard & Poor's Diversified Telecommunications Services Index and the 6.4 percent advance of the S&P 500-stock index.

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"As merger mania was heating up in the telecommunications space, we were concerned that the Bell companies were more likely to be the buyers than the sellers," said O'Brien, 50, in an interview from his office at Evergreen Investment Services Inc. in Boston. "Typically, you want to own the sellers."

O'Brien took over the Evergreen fund in April 2002 after it lost almost 40 percent of value in the previous two years. Since then, the fund has risen at an annual rate of 15 percent, tripling the average 5 percent gain of competing funds, according to data compiled by Bloomberg.

He "really turned around the fund's performance," said Andrew Gogerty, an analyst at mutual fund research firm Morningstar Inc. in Chicago. "Before that, it wasn't a very strong-performing fund."

O'Brien has brought a "sell discipline" to the fund, Gogerty said. "He won't hold onto a falling stock to see if it will turn over. He will be the first one to admit when he makes a mistake."

O'Brien's willingness to sell is reflected in the decisions to scale back positions in New York-based Verizon, SBC of San Antonio and Atlanta-based BellSouth Corp., companies whose shares are down or little changed in the past year.

O'Brien has about 2 percent of his mutual fund's assets in Verizon, SBC and BellSouth, down from as much as 3.5 percent at the start of the year.

Verizon plans to buy MCI Inc., of Ashburn, for $6.75 billion, and SBC is acquiring AT&T Corp. of Bedminster, N.J., for $16 billion. Atlanta-based Cingular Wireless LLC, which is owned jointly by SBC and BellSouth, paid $41.3 billion to buy AT&T Wireless Services Inc. in October.

None of the transactions will provide an immediate boost to profits, O'Brien said. MCI emerged from the largest U.S. bankruptcy in history in April, and AT&T's revenue fell for a 20th straight quarter in the final three months of last year.


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