The Comeback Story of Muhlenkamp Fund: Value Investing for a New Era

In the 1990s, the Wexford, Pennsylvania-based Muhlenkamp Fund was a shining star in the investment world, consistently outperforming the S&P 500 and earning a regular spot on Forbes’ mutual fund Honor Roll. Founded by Ron Muhlenkamp, the fund employed a distinctive value investing formula that sought companies whose return on equity exceeded their price-earnings ratios and maintained revenue growth of at least 10% annually. This approach allowed the fund to thrive with investments in companies like Ford, Alaska Airlines, and Lockheed Martin. As the fund’s reputation grew, its assets expanded dramatically from around $200 million in the late 1990s to more than $3 billion just before the Financial Crisis. However, the early 2000s saw Ron Muhlenkamp heavily investing in homebuilders like NVR and Beazer Homes—companies that appeared to be bargains on paper but were actually riding the housing bubble that would soon burst catastrophically.

The Financial Crisis marked the beginning of a challenging 15-year period for the Muhlenkamp Fund and value investors broadly. By the end of 2009, the fund’s assets had plummeted to $1 billion, and investments during this period would yield less than 9% annually—significantly underperforming the increasingly tech-dominated S&P 500’s 12% annual return. As customer confidence waned, assets continued to decline, falling to $350 million by 2023. The fund needed new direction, which came in the form of Jeffrey Muhlenkamp, Ron’s son who had retired as a Lieutenant Colonel after 20 years in the army before joining his father’s business as an analyst. In 2020, Jeff took control of the family’s namesake fund, bringing fresh perspective while honoring his father’s investment philosophy. Under his leadership, Muhlenkamp Fund has achieved what few actively managed mutual funds can claim—outperforming the S&P 500 over the past five years with an average annual return of 17.56% compared to the index’s 16.47%. The fund’s 2023 performance has continued this trend, with a 14.3% increase that outpaces the broader market’s 12.6%.

While Jeff maintains that he follows his 81-year-old father’s foundational principles, including the wisdom that “a good company at a high price is a bad investment,” his stock selection reveals a more pragmatic approach that aligns with current market trends. Perhaps the most striking example is the fund’s substantial 19% allocation to gold stocks, responding to inflation fears and geopolitical instability that have pushed gold prices to double over the past five years. What began as a small position in the SPDR Gold Shares ETF has evolved into significant investments in miners such as Newmont, Agnico Eagle, and Royal Gold. Jeff argues that gold has proven to be a more effective portfolio hedge than Treasurys since the COVID-19 pandemic, noting that central banks are purchasing approximately one thousand metric tons of gold annually—nearly a third of global production—while federal deficits continue to widen. Rather than worrying about a potential gold bubble despite the metal’s 40% increase this year, Muhlenkamp believes gold’s upward trajectory could continue for years as debt and deficits weigh on the dollar’s value.

Beyond gold, Muhlenkamp has positioned the fund in momentum-friendly holdings including Microsoft, Berkshire Hathaway, and Apple—representing an evolution of his father’s value approach. Jeff counts himself among the “converted value investors” who purchase growth stocks when the financial calculations support such decisions. His investment process begins by screening for above-average return on shareholder equity while monitoring inflation trends, noting that “as inflation goes up, people pay for return on equity.” This strategy provided significant advantages during the inflationary environment of the 1970s and, according to Jeff, has become relevant once again in today’s economic landscape. He also places considerable importance on how corporate management structures incentives and approaches stock buybacks, expressing skepticism toward executives who treat repurchases as routine rather than strategic. The fund’s Microsoft and Apple investments, for example, were initially acquired a decade ago not as tech growth darlings but as steady cash-generating businesses trading at attractive valuations of 10-12 times earnings with yields around 4%.

Among the fund’s greatest success stories is Rush Enterprises, an $8 billion (revenue) Texas-based truck dealership that Muhlenkamp first purchased in 2001 and has yielded approximately 45 times the original investment. Jeff explains the appeal as a consolidation opportunity with high-margin service components, noting that despite their success, Rush still represents only about 5% of new truck sales—suggesting significant growth potential remains. Another conviction holding is EQT, a Marcellus gas producer that Muhlenkamp values for its status as a low-cost producer with disciplined management and positioning to benefit from increasing demand for cleaner energy. “When we ran the numbers, even if their free-cash projections were half right, it was a 15% yield… that looked very attractive,” he explains. Just as important as what the fund owns is what it avoids or sells. Muhlenkamp expresses significant caution regarding artificial intelligence investments, stating that “AI is somewhere between a boom or a bubble, and the difference is immaterial.” In January, the fund exited its position in Broadcom, an AI infrastructure company that recently partnered with OpenAI, after a five-year investment period.

Looking toward the future, Jeff Muhlenkamp remains cautious about the AI investment trend, drawing parallels to past investment crazes in sectors like shale energy and housing. “Capital-spending booms always end in a bust,” he observes, suggesting that the eventual correction in the AI sector will create bargain opportunities for disciplined investors. Meanwhile, the fund has been rotating toward manufacturing and healthcare sectors that remain undervalued after a two-year industrial downturn. This balanced approach—combining his father’s value investment principles with adaptations for current market conditions—has positioned the Muhlenkamp Fund for continued success after years of underperformance. By staying true to fundamental investment discipline while remaining flexible enough to capitalize on emerging trends, Jeff Muhlenkamp has breathed new life into the family fund, demonstrating that thoughtful value investing strategies can still deliver exceptional results in a market increasingly dominated by growth and momentum investing.