First Bank System portfolio manager James S. Rovner runs an equity mutual fund that has been churning out some of the highest returns of any bank-managed fund - or, as he is quick to point out, for any mutual fund.

"No one talks about insurance company funds, you know," he says, with a hint of irritation in his voice. "Why should it matter that I happen to work for a bank?"

Why indeed? Mr. Rovner's First American Special Equity Fund, with total returns of 29.9% in the 12 months ended May 31, has been a stellar performer by anyone's standard.

Its one-year and five-year performance ranked among the top 6% in its investment category, according to CDA/Wiesenberger, Rockville, Md. And its 4.13% return in the first quarter made it fourth out of all bank-managed equity funds in American Banker's performance rankings, from data compiled by CDA/Wiesenberger.

The Special Equity Fund also has been right on the tail of the Standard & Poor's 500, which rose 29.3% in the 12 months through May.

Mr. Rovner is confident his stock picks, which he made with long-term investing in mind, will remain strong even if the bull run ends. The portfolio holds 55 to 60 stocks, with no more than 3% of assets in any one stock, he said. Because much of the fund's assets are in 401(k) plans, Mr. Rovner said, asset flow has remained stable.

If the market falls, the fund is unlikely to follow, because 15% of its assets do not closely track the S&P 500, said Daniel L. Phelps, senior analyst at CDA/Wiesenberger. With 6% of its assets in cash, the fund should be nimble enough to avoid following a market downturn, Mr. Phelps added.

Mr. Rovner said he picks stocks individually, not by sector. Two of his current holdings are Saks Fifth Avenue, a New York-based high-end department store, and Lone Star Steak House, a Wichita, Kan., restaurant chain.

Saks and Lone Star are now trading at or near their 52-week lows, at 12 to 14 times earnings, Mr. Rovner said, but he expects each to go up over time. The companies are trading around where technology companies were a few years ago, when Mr. Rovner invested in the undervalued stocks of Compaq Computers, Dell Computers, and Gateway 2000.

"There is still a herd mentality," he said. "But value funds get opportunities when stocks are sold first and questions are asked later" when stock prices begin to go down.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.