IN INVESTING, timing is everything.
In 1929, Adams Express Co., a well-regarded package and money-order delivery concern, decided to remake itself into an investment company.
What a blunder.
That month, on Oct. 28 and 29, the Dow Jones industrial average suffered its worst loss ever -- plunging 23 percent.
But 68 years later, Adams Express is still going strong. The Baltimore-based company is one of the largest and oldest closed-end mutual funds in the country with $1.6 billion in assets, and a track record that is impressive not only for its longevity, but for its performance.
In the first three months of the year, it chalked up returns of 13.7 percent with dividends reinvested, beating the average return posted by most mutual funds, and nearly matching its benchmark, the Standard & Poor's 500, which increased 13.95 percent.
For the last 10 years, Adams is up nearly 17 percent on average.
"We are cranking along," said Douglas G. Ober, Adams' 52-year-old chairman and chief executive. "The returns at Adams have been tremendous."
Yet, like other closed-end mutual funds, Adams Express gets little respect. Indeed, its returns may be good, but Adams' stock is trading at a steep discount.
Adams sells its shares to investors, then uses the money to buy about 100 stocks that it manages.
Investors benefit in two ways: when Adams' stock appreciates and when it pays dividends and capital gains that are generated from successfully managing the portfolio.
Despite its strong track record, Adams' stock is underperforming. It is trading at about $27.50 a share, which is a 14 percent discount to what it should be trading at based on the performance of the stocks in its portfolio.
Adams' assets aren't made up of risky stuff, but big-name stocks, including General Electric Co. and Gillette Co.
"If you are buying in at a discount, you are getting a bargain," said Dan Navarro, senior analyst at CDA/Wiesenberger, a Rockville-based financial information services company. "Here you can buy a closed-end fund that has General Electric in its portfolio, yet you are not paying full price for General Electric."
The real payoff comes when Adams' stock rises and the dividend checks start flowing.
But one rub against closed-end funds is that investors must pay a brokerage commission to buy the shares, unlike many funds offered by large mutual fund companies.
Sometimes investors have a hard time selling their shares in a closed-end fund because of weak demand. Adams' average volume is 40,000 shares traded a day.
But Ober argues that Adams Express is a good alternative for investors because it is conservative, has a proven track record, and pays dividends and capital gains.
Ober packs the portfolio with big, steadily growing companies that he feels he can hold for five to 10 years. He thinks his picks will protect investors even in down markets.
About 17 percent of Adams is invested in financial companies, including Banc One Corp., Mellon Bank Corp. and Baltimore-based Provident Bankshares Corp.
Another chunk, nearly 15 percent, is salted away in technology companies, including Lucent Technologies Inc. and Motorola Inc.
"Right now we are looking at some interesting biotech companies," Ober said.
Biotechnology? Cellular phone companies? These investments are light years from Adams' roots.
The company was created 144 years ago to transport people, small parcels and communications in stagecoaches. Adams expanded into the money-order delivery business, and it invested heavily in railroads.
But during World War I, the government took control of railroads, and forced Adams to sell its ownership stake. Adams, however, purchased stock in the railroad companies, and in 1929, it became an investment company.
Ober is uneasy with the current stock market. He worries that investors are brushing off problems in Asia.
But money managers like Ober are paid to worry, especially when they run a company with a rich past and 30,000 investors.
"I don't feel the weight of history saying, 'Doug, you have got to keep this company going for another 150 years,' " he said. "But I do feel a great responsibility to the shareholder, to preserve their capital. I don't want to lose money for them."
Pub Date: 4/19/98