Fund name: Dreman Contrarian Small Cap Value (DRSVX)

Objective: Fund invests primarily in common stocks of small capitalization companies that have unrecognized intrinsic value. The fund invests primarily in a diversified portfolio of equity securities of companies that are similar in market capitalization to those listed on the Russell 2000 Value Index. As of September 30, 2007, the market capitalizations of companies included in that index ranged from $72 million to $5.2 billion (which is to say, ultra-micro to mid-cap). Dreman looks for overlooked companies with low P/E ratios, solid financial strength and strong management that are selling below their intrinsic value.

Adviser: Dreman Value Management LLC. Dreman Value Management is one of the pioneers of contrarian-value investing. It manages about $19 billion in assets for a wide variety of institutional, sub-advisory and high-net-worth clients. The senior investment staff is remarkably senior: they average over 26 years of experience.

Manager: David Dreman, Clifton Hoover, Mark Roach. Mr. Dreman is the founder, chairman and chief investment officer of Dreman Value Management. He’s also a Forbes columnist and author of three books, most recently Contrarian Investment Strategies: The New Psychological Breakthrough (Amazon reports a publication date of December 2030 which might be a typo). Mr. Hoover is managing director and co-chief investment officer at Dreman and co-manager of the Dreman Quantitative Small Cap Value Fund. He joined Dreman in December, 2006. Previously, he was with NFJ investment group since 1997. He began his career as a financial analyst with NationsBank in 1985. Mr. Roach joined Dreman in November 2006, and is a Managing Director. He co-manages the Mid Cap, Small Cap, Quant Mid Cap and Quant Small Cap funds. Before joining Dreman he was a portfolio manager at Vaughan Nelson Investment Management where he managed a $1.5 billion equity portfolio using a strategy similar the one they use here. The SEC also shows registration materials for a colorful array of hedge funds (Dreman Contrarian, Dreman High Opportunity, Dreman New Wave Contrarian and Dreman Pure Contrarian) and a relatively new closed-end fund (Dreman/Claymore Enhanced Opportunity Fund).

Management’s Stake in the Fund: Mr. Dreman has between $500,000 and a million in the fund. The other managers are not invested in it. As a group, the Trustees and officers of the adviser own about 2% of this fund.

Opening date: December 21, 2003. On January 23, 2008 it was reorganized to move it from the Unified Series in-house to Dreman. That’s important only because some data reporting services don’t report the fund’s full four-plus year history.

Minimum investment: $2,500 for both regular and tax-sheltered accounts; minimum subsequent investment is $1000 or $100 if you establish an automatic investing plan.

Expense ratio: 1.50% after waivers which are in effect until October 31, 2009. There’s also a 1% redemption fee on shares held less than one year. The fund has $41 million in assets.

Comments: The only reason that DRSVX remains a "star in the shadows" is that the Dreman folks have not yet made a serious effort to market it. Heck, they barely acknowledged the existence of their six no-load funds in 2007. The Dreman website made no mention of them, they weren’t advertised and there were no interviews concerning the funds. I suspect that Dreman’s reticence is starting to change. That suspicion is grounded in two observations. First, Dreman is bringing his no-load funds home (they used to be managed by Dreman but run as a "series" of another company’s funds) and substantially increasing the number of them. The original three Contrarian funds have been joined by three Quantitative funds, two funds-of-funds (which will launch in May) and an international fund (ditto). Second, Dreman is actively working to strengthen the Value Management team. Mr. Dreman is 71 years old and has begun an aggressive overhaul of his investment firm. Mark Bruno, writing for Pension & Investments on-line edition (May 28, 2007) noted that he’s hired a potential heir for the Chief Investment Officer position as well as a new president and new CEO. In a self-conscious attempt to upgrade operations, compliance and marketing, 11 employees have left the 47-person firm since the start of 2006 while 18 have been added. Mr. Hoover seems to have won Morningstar’s endorsement (he "amassed fine records" at both the large value and small value funds he ran for NFJ) as well as Mr. Dreman’s.

Beyond that, this is a very fine fund. Mr. Dreman is disciplined and quite willing to make serious bets in line what that discipline. He’s pessimistic about the immediate prospects of the U.S. economy and market and has positioned the fund accordingly. He noted in the last annual report: "Given the heightened level of economic uncertainty, we believe the Portfolio is positioned correctly with overweight positions in Healthcare, Consumer Staples, and Energy, and an underweight in the Financial Services and Consumer Discretionary sectors." He has, as a result, placed 30 – 90% more in those sectors than have his peers.

This fund, like Dreman’s investments in general, has been very successful. It’s currently rated as a five-star small cap by Morningstar. Morningstar’s finding is that the fund offers high returns for only average risk. Lipper assigns it the highest possible score for Total Returns, Consistency of Returns and Tax Efficiency. It has beaten its peer group and its benchmark index every year since inception and, during the market unpleasantness in early 2008, it placed in the top 10% of all small core funds with a loss of 3% (through 2/28). From inception through the end of 2007, DRSVX returned 16.4% annually while its benchmark index returned 9.3%.

For folks who consider themselves "visual learners," here’s what that performance looks like:

A nice side benefit: As of October 31, 2007, the Small Cap Fund had a capital loss carry forward of $836,223 which is available to offset future capital gains through 2013. Those losses were generated by another manager whose fund Dreman bought and morphed into DRSVX. Happily, Dreman’s shareholders get the benefits of those losses without the accompanying pain.

My one caveat is that he’s leaving. Mr. Dreman has no immediate plans to depart and is, by all accounts, focused, vigorous and in full possession of his faculties. Nonetheless, he’s 71 and setting things up for a successor. In general, such successions have gone very smoothly as long as you bring in bright new guys and take the time to acculturate them to the Great Man’s system.

Bottom line: This is a historically strong performer that invests broadly. Its portfolio can hold mid-caps as well as microcaps and racier issues in attractive sectors as well as traditional value plays. There are few more-disciplined or more-storied investors with whom you might work.