Schutz spends most waking hours trolling the financial markets for stocks that meet his standards for the Burnham Financial Industries Fund (ticker: BURFX), the two Burnham Financial Group funds) began buying stakes in companies that Schutz expected would be targets for acquirers. That play lasted years, helping him deliver hefty returns.

Now it's different. "For most of my career, I've focused on sellers, because that is where the market premium was. Now I am looking at the acquirers, the institutions that are finding tremendous value in picking up broken institutions," Schutz says. "Those are the businesses and the stocks that will generate the greatest returns in the
Schutz's portfolio these days is eclectic, ranging from well-known names, like insurance giant Travelers (TRV) and investment bank-turned-"regular"-bank Morgan Stanley (MS), to lesser-knowns, like Invesco Mortgage Capital (IVR) and Chimera Investment (CIM). The last two are specialty finance companies established to invest in distressed real-estate assets, mortgage loans and mortgage-backed securities. "These kinds of new entities will benefit as book values grow; meanwhile, they will be paying out significant yields," Schutz says. The Invesco real estate investment trust is advised by a group including veteran distressed-assets investor Wilbur Ross; Chimera, another REIT, was launched by Annaly Capital Management, which retains a 6.7% stake.

Schutz wants to own banks awash in capital. While that has mostly meant avoiding banks in Florida, California, Nevada and Arizona, one of those he has snapped up is CenterState Bank (CSFL), based in Davenport, Fla. "They have retained a tremendous amount of capital," Schutz says. "They are in the middle of Florida, where there are enough interesting deals to be done at bargain prices that they could double their size, and then some." At about $7.30 a share, the stock is itself a bargain, trading for about half its book value, he adds. Another cash-rich bank is 1st United Bancorp (FUBC), a Boca Raton, Fla.-based lender that raised $70 million in capital in late September: "That is capital that is offensive in nature; they will be using it to buy wounded, sick institutions and that will create value for investors."

Schutz's net has also swept up names like Ameriprise Financial (AMP). He says the money manager trades at prices that don't reflect the value of its assets, which include the Columbia family of mutual funds just purchased from Bank of America. That's a well-known financial firm; Connecticut's People's United Financial (PBCT), however, is anything but. "They were misunderstood by the market. They were a mutually owned savings and loan that has opted to go at least partially public," he explains. Having done so, it is sitting on a lot of capital. He's waiting patiently for People's to make what he thinks will be "a transformative acquisition."

And patience, for investors in financial stocks, is what it's all about. "When you identify the theme that you believe will lead to above-average returns, and you have done your research and identified the companies you think will benefit, then you have to wait for it to come to fruition," Schutz explains. Sort of like landing a marlin.

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