Gabelli Asset Management, founded by the legendary money manager Mario Gabelli, represents a classic value-investment firm.

One of the firm’s flagship funds is Gabelli Equity Trust  (GAB) , an all-capitalization value mutual fund with $2 billion in assets. It’s a closed-end fund, which means it’s listed on an exchange (the NYSE) and trades throughout the day.

The fund returned an annualized 0.35% for the past year, 3.49% for the past three years, 8.4% for the past five years, and 7.7% for the past ten years.

Gabelli's Investment Philosophy

We recently spoke with one of the fund’s managers, Macrae Sykes, who also manages Gabelli Financial Services Opportunities ETF  (GABF) . He discussed his investment philosophy and cited some of his favorite stocks.

Gabelli Equity Trust takes a bottom-up investing approach, which has led it to financial services, sports teams, and aviation stocks, Sykes explained.

Related: Veteran fund manager picks 3 top value stocks for 2024

TheStreet.com: What’s your investment philosophy?

Sykes: We look for companies trading at a discount to intrinsic value, where there’s a catalyst to narrow that gap in valuation. We’re not just looking for cheap stocks. We want durable, competitive businesses with management teams that have an entrepreneurial mindset to capital allocation, customer engagement, and operational excellence.

TheStreet.com: What are some of the themes you have been drawn to as value investors?

Sykes: Financial services, the No. 2 sector in the fund, is uniquely positioned. It has companies with large moats and compelling long-term growth. [Moats are durable competitive advantages.]

One example is Interactive Brokers  (IBKR) , an online securities brokerage. It has annual new client growth of 20% and 70% operating profit margins. Its fundamental output is technology, but it trades at only 15 times earnings [much less than many tech companies].

TheStreet.com: What are other areas of financial services that you favor?

Sykes: One is global payments. It’s growing 8% a year, thanks to economic growth and innovations away from cash and checks. We like American Express  (AXP) , which is growing faster than 8% because of its engagement with younger cohorts and small and medium-sized businesses.

There’s also insurance. It’s a feast-or-famine business [given the unpredictable need for payouts]. Better-run companies are benefiting from higher premiums, and inflation has elevated their asset values. In addition, higher interest rates have provided insurers higher yields on their investments.