April 6 (Bloomberg) -- David Dreman was fired as manager of a Deutsche Asset Management mutual fund he has run for 20 years after a bet on financial stocks contributed to a 47 percent loss in the past year.

The trustees of the $2.2 billion DWS Dreman High Return Equity Fund voted to remove Dreman Value Management LLC on June 1, according to a filing last week with the U.S. Securities and Exchange Commission. The fund’s loss in the past year placed it in the bottom 3 percent of its peers, according to data compiled by Bloomberg.

Dreman, 72, who likes to buy out-of-favor companies that he deems financially sound, put 27 percent of the fund in financial-services stocks as of Aug. 30. Companies such as Citigroup Inc., Bank of America Corp. and Washington Mutual Inc. had declined earlier in 2008 before plunging further in September, triggering a federal bank bailout. The fund trailed the Standard & Poor’s 500 Index in one- and three-year periods.

“We had seen very weak performance for the fund over every major time horizon,” said David Wertheim, product manager for equities at DWS Investments in New York. While Dreman brought in co-Chief Investment Officer E. Clifton Hoover to help him manage the fund in 2006, the change didn’t “lead to a meaningful turnaround in the execution and performance,” Wertheim said.

Dreman Value Management, which has offices in Jersey City, New Jersey, and Aspen, Colorado, started the fund in 1988, Dreman said in an interview. While the fund has had several different owners since then, including Kemper Corp. and Scudder, Stevens & Clark Inc., Dreman has remained its primary portfolio manager.

‘Bounce Back’

“We are well known for this contrarian style and the fact that we do bounce back,” Dreman said today. Well-known managers with a similar style, such as Legg Mason Inc.’s Bill Miller, have also suffered big losses, he said. “This is probably the kind of market we will bounce back in.”

Dreman trailed the S&P 500 Index by 34 percentage points during the Internet boom in 1999, only to beat the U.S. benchmark by 50 percentage points when the technology bubble burst the following year.

DWS Dreman High Return still has a good long-term record, he said. The fund gained an annual average of 8.6 percent, excluding the sales load, from its inception through March 31, according to its Web site.

Dreman’s firm will continue to run DWS Dreman Small Cap Value and DWS Dreman Mid Cap Value funds, which have about $1.2 billion in assets, for DWS Investments, the Deutsche Asset Management unit that caters to retail clients.

Fund Assets

DWS is Germany’s largest asset manager, overseeing about $293 billion globally as of Dec. 31. Deutsche Asset Management is a unit of Deutsche Bank AG, Germany’s largest bank.

DWS Dreman High Return’s loss in the past 12 months exceeded the 39 percent decline in the U.S. benchmark Standard & Poor’s 500 Index by about 8 percentage points.

The fund fell an average of 18 percent during the past three years, including dividends, compared with an average decline of 12 percent for the S&P 500.

Greg Carlson, an analyst at Morningstar Inc. in Chicago, said the fund’s performance has been “pretty poor” during the past several years, though Dreman should have been given more time to turn it around.

“This is just indicative of the fact that if you are a subadviser, you are probably on a shorter leash” than a manager who’s an employee of the fund company, Carlson said.

New Managers

The fund realized a $681 million loss by selling off some of its holdings in November, the final month of its fiscal year, and had net redemptions totaling $859 million for 2008, according to an annual report filed with the SEC on Jan. 30.

The fund will be renamed DWS Strategic Value around June 1, according to the SEC filing. After that, it will be run by Volker Dosch, Oliver Pfeil and Thomas Schuessler, all of whom work for DWS Investments in Frankfurt, Germany.

In 2007, they took over DWS Large Cap Value Fund, which has lost 34 percent in the past year, a better performance than 84 percent of its peers, Bloomberg data show.

Wertheim said Dreman has sought out stocks he deemed to be low-priced using the price-earnings ratio, which measures how much investors are willing to pay for a company’s profit-making ability. The new managers will use a “flexible value approach” that considers factors such as dividend yield, the ratio of stock price to book value, and cash flow, he said.

The fund will also hold about 80 stocks, compared with 40 to 50 under Dreman, and be less concentrated among its top 10 holdings, which accounted for about half of the total portfolio under Dreman, Wertheim said.

“We will have less capital at risk per security,” Wertheim said.

Dreman, who founded the predecessor to his money management firm in 1977, has been a columnist for Forbes magazine and the author of several books on investing, including “Contrarian Investment Strategies: The New Generation” (Simon & Schuster, 1998).

To contact the reporter on this story: Miles Weiss in Washington at mweiss@bloomberg.net

Last Updated: April 6, 2009 15:52 EDT