Gabelli Funds: How This Value Equity Firm Analyzes Opportunities

By Amit Chowdhry • Nov 6, 2023

Gabelli Funds is a pioneer in value equity, and the firm is recognized to have developed the Private Market Value with a Catalyst stock selection process. This investment approach has been utilized in client portfolios since the firm’s inception in 1977. To learn more, Pulse 2.0 interviewed Hanna Howard, a Gabelli Funds’ Research Analyst and Portfolio Manager.

Hanna Howard’s Background

Howard joined Gabelli full-time in 2019 as a research analyst after completing an internship during the summer of 2018, between her first and second years of business school. Howard said:

“I’m currently a Vice President, and serve as a portfolio manager and research analyst. I cover both the packaging industry as well as the media & entertainment sectors, with a focus on broadcasting and media companies. I have an MBA with a concentration in finance from Northwestern University’s Kellogg School of Management, and I went to Vanderbilt University in Nashville, TN, for my undergraduate degree. I currently live in Tribeca (NYC) with my husband and golden retriever.”

Differentiation From Other Firms

What differentiates Gabelli Funds from other firms? Howard shared:

”Since the company was founded in 1976 as an institutional research firm, Gabelli has evolved into a diversified global financial services company offering an extensive range of investment capabilities. Gabelli is widely recognized for its research-driven, value-oriented investment process, which is based on Graham & Dodd’s principles of modern security analysis but further augmented by our founder, Mario Gabelli, with his introduction of the concept of Private Market Value (PMV) with a CatalystTM. Gabelli is credited with establishing the PMV with a Catalyst investment philosophy and applying this to the analysis of public equity securities.”

Investment Strategy And Process

What is Gabelli’s investment strategy and process? Howard reflected:

Our investment approach utilizes fundamental, bottom-up research to identify securities selling below their intrinsic value. We’re long-term, value-oriented investors and seek to identify mispriced companies with strong businesses and the presence of a catalyst that will surface value. Owning great companies over a period of years has produced competitive equity returns, and we take comfort in the fact that success as equity investors improves with the length of our investment horizon.”

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Total AUM

After asking Howard about the firm’s total assets under management, she revealed: 

“As of September 30, 2023, Gabelli had $29.1 billion in assets under management.”

Significant Milestones

What have been some of your firm’s most significant milestones? Howard cited:

— The firm has evolved so much over the years. Our founder, Mario Gabelli, founded the firm in 1976 and has grown it into the diversified global financial services company that it is today.  He is still in the office every day and oversees every fund.

— Mario Gabelli joined the Barron’s Round Table in 1980 and is still a member of Barron’s All-Star Century Team. Gabelli won the #1 asset management spot in 1982 by Thomson Financial, Portfolio Manager of the Year in 1997, and named Money Manager of the Year by Institutional Investor in 2011.

— The firm went public in 1999 and trades under the ticker symbol GBL.

— We have offices all over the world. I work in our headquarters in Rye, NY.

Evolution Of Gabelli’s Thesis 

How has your firm’s thesis evolved over time? Howard noted:

While I haven’t personally been around since the very start, I’d say that the keys to our success are the same today as they were in 1976 – a focus on fundamental bottom-up research, a consistent investment process, and a commitment to generating superior risk-adjusted returns. We continue to evolve our process while remaining true to our PMV with a CatalystTM approach. Combining this methodology with bottoms-up research, we look to identify excellent businesses run by strong management teams that are currently trading at meaningful discounts to their observable/market values; we believe these investments will do well over the longer-term, regardless of what happens in the larger macro environment.”

“We still do fundamental research by visiting a company in person, reading the trade magazines, going out to conferences, and going out to the competitors. What’s changed though over the years is how we gather the information. When Gabelli started, we were all located on Wall Street because the New York Stock Exchange had the database. Now, technology puts this data at our fingertips.”

Industry Focus

What are some of the industries that your firm is focused on? Howard explained: The automotive and media sectors are two of the big ones, and have been over the years. Gabelli Funds actually held its 15th Annual Media & Entertainment Symposium in NYC earlier this year, where we hosted a number of leading organizations across the media ecosystem to discuss industry dynamics, current trends, and other relevant topics, etc. On the media side, we typically look for opportunities/companies involved in either creativity/the development of intellectual property rights (copyrights); or those involved in distribution (as it relates to the delivery of these copyrights). We also invest in businesses participating in emerging technological advances in interactive services & products.”

Thoughts On The Investment Landscape

After asking Howard her thoughts about the current investment landscape, she concluded: 

“Last year was a challenging one for many of the media companies that we look at, largely due to ongoing secular shifts in consumer behavior (e.g., toward streaming and away from theaters + the traditional large pay-tv bundle, TikTok share gains, etc.) as well as investment spending to facilitate these transitions. All of this was further compounded by a rapidly deteriorating advertising market. One name we own and that has performed well is Meta Platforms (META), formerly called Facebook. The stock had climbed to over $380 back in September of 2021 when Meta (the parent company of Facebook, Instagram, Messenger, & WhatsApp), along with Alphabet’s Google, dominated digital advertising. However, just about a month after shares peaked, CEO, Mark Zuckerberg rebranded the company as Meta Platforms. Privacy issues loomed, and Apple was taking measures to protect user data, which hurt Meta’s ability to both target and measure advertising.”

“The company was also facing various other challenges with the shift in time-spent towards short-form video/Reels (lower monetization vs. feeds/stories), competition for user time appeared to be intensifying (with TikTok), and some advertisers had started pulling back spending amid cost inflation & supply chain issues, etc. as well. In 2022, ad prices fell as the company invested billions of dollars in the Metaverse and continued its rapid pace of hiring, seemingly without regard to softening business conditions. About a month before the stock bottomed out last November, Zuckerberg announced his first in a series of layoffs and cost cuts. Since then, Meta’s ‘Year of Efficiency’ and AI capabilities have increasingly come into focus, with the Metaverse taking more of a back seat. Meta’s social media platforms have gone on to break records for user engagement with over 4 billion monthly average users, and the company recently disclosed that Reels has now reached a run-rate of $10 billion in annual revenues, surpassing expectations.”

“The broader digital advertising market also appears to be improving slightly, although still varies significantly across categories, and comps will continue to get easier throughout the remainder of the year. Meta’s stock price has recovered to around $300 more recently, rising 250% since November. The company recently released a new platform, Threads, to compete with Twitter, which added over 100 million users in the first few days of becoming available. With the bulk of Meta’s cost savings actions/efforts now implemented and well underway, the company’s progress on driving topline acceleration should continue to create a nice set-up moving forward, in our view.”