New fund, same old rules

Amid the week's calamitous stock markets, a small St. Paul investment company launched a new mutual fund.

And that should give us some hope, based on long years of experience.

Hundreds of mutual funds are launched and closed annually around the globe. But St. Paul-based Mairs & Power only launches one about every 50 years.

Its flagship Mairs & Power Growth Fund, one of the first in America, has outperformed most market indexes during the past 53 years with a low-cost, low-turnover strategy focused on buying and holding quality Midwest companies such as Fastenal, Donaldson, Pentair, C.H. Robinson, Graco, U.S. Bancorp and 3M.

In a market driven by short-term traders, fast-money, highly leveraged hedge funds and high-turnover mutual funds that may churn their portfolios 100 percent or more annually, this new fund will be a fund for long-term investors.

The Mairs & Power Small Cap Fund (ticker: MSCFX) will focus on small-capitalization regional companies of $400 million to $3 billion in market value.

"The timing looks pretty good," said Andy Adams, 39, who will manage the fund. "We're about 20 percent off the market highs of the S&P 600 index, our benchmark, for the year. I'm buying a lot of stocks for 10 times [2012-projected earnings]. These valuations are not the lowest I've ever seen, but they're bottom 25 percent."

We could use a little more of that long-term thinking at a time when most of us invest our own retirement dollars, and there are mounting fears about the solvency of Social Security for our kids.

The first $2 million in the small cap fund came from Adams and other Mairs employees and fund directors -- so they have their own money in the game.

Adams and other managers at Mairs have considered for several years launching a small-cap fund to complement the larger-growth fund and the more conservative balanced fund at Mairs, which manages about $4 billion in institutional and individual money.

Mairs tradition

"We've got about 40 stocks and we'll be a little more aggressive than the growth fund," Adams said. "You'll recognize a lot of names and there's some overlap, such as Graco, Valspar and Toro, with the growth fund. We're adding Buffalo Wild Wings, SPS Commerce, Snap-On Tools ... the vast majority are companies we've followed and visited in Minnesota, Illinois and Wisconsin."

Their mentor, George Mairs, a gentleman of the investment industry who died last year at 81, outperformed 90 percent-plus of the country's hotshot fund managers for a half-century and was better known for modesty and philanthropy than flashy cars and mansions. He gave money a good name.

Many of the companies Mairs & Power owns in its mutual funds also are listed in the Bloomberg Star Tribune 100 index, which is complied annually by the newspaper from among Minnesota's largest public companies and ranked by revenue.

Over the last five years, the Bloomberg Star Tribune index has delivered a total return of 21 percent while the Mairs & Power growth and balanced funds delivered total returns of 10.5 and 20 percent, respectively. Total return for the Standard & Poor's 500 for the five years though Friday was 3.5 percent.

In an interview this week, Frels fretted about the market tumult that was ignited in late July by the failure of Congress and the White House to reach a compromise on a long-term deficit reduction plan. The strategy was to rely largely on spending cuts and also obtain a small portion from new revenue, mostly from cleaning up the tax code for the first time since 1986.

Add the European debt crisis and a string of weak economic reports and you have the recipe for what's happened to global stock markets in last three weeks.

"We do need long-term deficit reduction and understandable guidelines from Washington. And then we just need to let the economy and market work."

Sounds like a plan.