NEW YORK (Bloomberg) — Scott L. Barbee, manager of the Aegis Value Fund, made the worst investment decision of his career and the fund still ranked as the best performer in its category during the past year.

Barbee held shares of Sea Containers Ltd., the Bermuda-based ferry and train operator that went bankrupt in October. The collapse cut 4 percentage points off the gains of his $410 million fund. Aegis Value still rose 22 percent in the past 12 months, exceeding the gains of 85 competing US mutual funds tracked by Bloomberg that buy stocks perceived as cheap relative to financial yardsticks including earnings.

“We got hit with my worst stock pick in 10 years,” the 35-year-old Barbee said in an interview from his office in Arlington, Virginia, at Aegis Financial Corp., which oversees about $500 million for clients. “Fortunately, we had several positions that worked out to offset that.” The winners were fertiliser producers CF Industries Holdings Inc. and Terra Industries Inc., tobacco merchant Alliance One International Inc. and Imperial Sugar Co.

Barbee said he still holds shares of Sea Containers, owner of the SeaStreak ferry that runs between central New Jersey and Manhattan as well as U.K. train company GNER. The stock has plunged to less than $1 a share from a high of $14.08 last year.

“I can’t bring myself to throw in the towel,” he said.

Barbee, who has managed Aegis Value since it opened in 1998, buys companies trading at a discount to book value, or assets minus liabilities. The average market capitalisation of companies in his fund is $869 million, compared with the $1.3 billion average for those in the Russell 2000 Value Index, which tracks the smallest US companies.

Shares of Long Grove, Illinois-based CF Industries soared 59 percent and Sioux City, Iowa-based Terra Industries advanced 52 percent since the start of the year. The stocks rallied as prices of natural gas, which is used to make nitrogen fertiliser, declined.

CF and Terra were reeling before Barbee purchased the shares because natural gas prices increased in 2005. “They were just the type of companies we like: distressed, unloved and unwanted,” he said, adding that he holds on to stocks for as long as five years.

Barbee had as much as half of the fund’s assets in cash and short-term securities in 2003 when he couldn’t find enough cheap stocks to buy. The fund, which more than doubled in size during the past five years, now has about a quarter of its money in less-risky government securities.

Barbee’s “approach is contrarian,” said Katherine Yang, an analyst at Morningstar Inc., an industry research firm in Chicago. “As more money has come into the fund, it’s been harder for him to find good micro-caps.”

The Aegis Value Fund has received four out of a possible five stars from Morningstar. It has a Sharpe ratio of 0.83, compared with 0.79 for similar funds tracked by Morningstar. A higher Sharpe ratio means better risk-adjusted returns.