Slow and steady Mairs wins national accolades

  • Article by: NEAL ST. ANTHONY , Star Tribune
  • Updated: January 4, 2013 - 9:21 PM

Morningstar lauded St. Paul mutual fund managers.

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Mairs & Power’s Mark Henneman, left, and Bill Frels were selected by Morningstar as 2012 domestic stock fund managers of the year.

The late George Mairs would be rightly proud.

His firm's flagship fund was named the best-managed domestic mutual fund in America this week. And the fund's investment style was favorably compared to a tortoise.

The honor is proof that patience and prudence can triumph in an industry often known for frenetic trading and high portfolio turnover.

When George Mairs launched the Mairs and Power Growth Fund in 1958, there were fewer than 100 mutual funds in the United States. He was involved until his death at age 81 in 2010.

This week, Mairs portfolio managers Bill Frels, 73, and Mark Henneman, 51, longtime associates, were selected by Morningstar as the 2012 domestic stock fund managers of the year.

The Mairs Growth Fund, with $2.5 billion in assets, returned a market-beating total return of 21.9 percent to investors last year and 8.6 percent annualized over the last decade. The performance was driven by low-profile Minnesota-based industrials including paint maker Valspar; lawn mower and irrigation equipment maker Toro; Ecolab, which makes cleaning and sanitizing products, and industrial adhesives maker H.B. Fuller.

Of the fund's 25 largest holdings, 18 were bought in the 1990s. Only one of the 25 has been owned for less than 10 years.

Greg Carlson, a senior fund analyst at Chicago-based Morningstar, a leading analyst of mutual funds and individual securities, called the Frels-and-Henneman approach to owning mostly close-to-home Upper Midwest firms they can follow closely "tortoise-like." Other holdings include 3M, Target, U.S. Bancorp, Medtronic, Pentair and Graco.

"The home-state bias has helped the managers focus intently on a handful of higher-quality global firms whose fortunes aren't necessarily tied to one state," Carlson said.

The Growth Fund has more exposure to staid-but-innovative industrial, heath care and basic-materials concerns than trendy consumer companies. Mairs managers avoided mercurial Best Buy.

They also sidestepped the worst of the financial crisis by avoiding go-go bankers who crashed. The fund tends not to be a sky-high performer in speculative markets, but does better in down markets. Over the last decade the Mairs & Power Growth Fund (ticker: MPGFX) bottomed about 15 percent above the lows of the Standard & Poor's 500, according to Morningstar.

The Growth Fund's cumulative total return (including dividends) since Jan. 1, 2000, is 198 percent compared with 31 percent for the S&P 500 index. The majority of portfolio managers don't beat their benchmark indexes over time.

Henneman said recent accolades in national publications and continued good performance are bringing more money in the door.

"That's good, because we've got plenty of stock we'd like to buy," he said.

He mentioned acquiring more Donaldson Co. and Target, which have been off their high-water marks lately.

The other Morningstar finalists included investment teams from huge Fidelity, American Funds and Oakmark.

Neal St. Anthony • 612-673-7144

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