Fund name: E*Trade Delphi Value (KDVRX)

Objective: The Delphi Value Fund seeks long-term growth of capital. It is designed for investors who have a long-term time horizon and no need for current income. The fund may take a 100% defensive position (presumably cash) if the manager chooses.

Adviser: Kobren Insight Management. Kobren runs one other mutual fund (the five-star Kobren Growth fund-of-funds), as well as accounts for high net-worth investors. The founder, Eric Kobren, also publishes two mutual fund newsletters.

Manager: Scott Black. Mr. Black has been managing investments for about 35 years. His primary investment vehicle is Delphi Management, which he founded in 1980 and which manages $1.5 billion for institutions, pensions and endowments.

Opening date: December 17, 1998.

Minimum investment: $2500 for regular accounts, $2000 for IRAs.

Expense ratio: 1.57%, on an asset base of $126 million between Retail and Institutional shares.

Comments: Mr. Black is both celebrity and philanthropist. He’s bright, outspoken, and uninterested in catering to high net worth individuals, which makes him a natural for regular appearances on CNBC and in Barron’s. He’s helped support a number of universities, two pediatric cancer treatment centers, and a drug outreach program.

All of which is possible because he’s a really talented investor. Delphi Management has returned an average of 19% per year since its founding in 1980. By comparison, the Wilshire 5000 has returned "only" 12.8% per year. That’s a consistent 50% advantage over the market, which adds up over time. A $1000 invested in the broad market in 1980 would be worth around $20,000 at the end of 2005. In Delphi Management, that same $1000 would have become $77,000.

Delphi Value fund has been solid, if not quite so stunning. Delphi Value has only trailed the Wilshire 5000 and the S&P 500 once in its history: both in 1999 when value guys were all about ready to give up and go home. The fund offers some parallels to Muhlenkamp. Like Muhlenkamp, Black looks for companies with high returns-on-equity, strong balance sheets, growing revenues and low prices. The fund invests across the market cap spectrum and holds a fair number of traditional growth and international stocks. Their five-year returns are almost identical, though Delphi is noticeably less volatile.

But there it is, mired in the mud. Morningstar rates it, over time, as somewhere between a two-star and three-star fund. Its longest trailing return (5 years) puts it in the bottom 25% of its peer group. And its expenses – 1.57% -- are too durn high. Understandably, asset growth has been nil.

The biggest problem is, I suspect, Morningstar’s style-box assignment, which also determines the fund’s peer group. This is classified as a midcap value fund, and that category has had a long, strong run. Unfortunately, Delphi isn’t a midcap value fund except by coincidence. Only 20% of its assets fall in the midcap value style box. Nearly a third at large cap growth and blend, 16% is mid- to large-growth, and so on. If you take the eclectic portfolio into account, then the comparisons start looking a lot better.

As to expenses, the Retail version of the fund has $67 million in assets. Given its size, 1.5% is not criminal.

Bottom Line: If you believe in the "hire a great investor and turn him loose" philosophy, Mr. Black may well be your guy.

Fund website: Delphi Value

August 1, 2006