AGE: 50
POSITION: President, FBR Advisers
LOCATION: Arlington, VA
EDUCATION: St. Lawrence University, B.A.; Rochester Institute of Technology, MBA
As the credit crisis deepened last year, David Ellison made a bold move. Worried about rising loan defaults, the portfolio manager of FBR Small Cap Financial Fund (FBRSX) dumped bank shares and shifted most of his assets to cash. By June of 2008, Ellison had 40 percent of assets in cash; by year-end, he held 57 percent in cash. Thus protected, FBR only lost 8.7 percent in 2008, a strong showing in a year when the average financial fund lost 43.9 percent.
Now Ellison has turned bullish, keeping less than 10 percent of assets in cash. He says that banks have regained their senses, only lending to borrowers who are likely to repay their loans. That will enable institutions to rebuild their balance sheets and increase earnings, he reckons. Despite some who say otherwise, financial stocks should rally over the next three to five years, he says. “You want to be in financial stocks during times like this when the cycle is moving up,” he says.
Ellison developed his investing strategy in the late 1980s when he managed Fidelity Select Home Finance (FSVLX). During a time when many savings and loans were collapsing, Ellison sought advice from Peter Lynch and other long-time Fidelity portfolio managers. The veterans suggested taking aggressive steps to protect shareholders, and Ellison shifted to cash. By the time he left Fidelity in the 1990s, Ellison ranked as one of the top-performing fund managers.
During the decade ending in May, FBR Small Cap Financial returned 9 percent annually, more than 9 percentage points ahead of its average competitor. Having survived last year's vicious downturn by divining industry trends early, Ellison's actions are worth watching.
