We are publishing a few days into the next month this time as we knew that there would be some managers who reported fourth quarter positions this week, and we wanted to use the “freshest” data possible rather than looking at positions added in the third quarter.

This month, we screen for attractive “bond replacement” investment candidates using large holdings of the Mairs & Power Growth Fund (MPGFX), a $4.2 billion NAV mutual fund managed by Mark Henneman and Andrew Adams.

We have selected the stocks that Henneman and Adams reported purchasing in the fourth quarter of 2016 (the latest period for which data was available) and have limited the list based on two criteria:

  • Stocks listed represented more than 2% of the respective portfolio’s value
  • Stocks listed had been bought by the fund in the reported quarter

These conditions were to screen for the stocks in which the managers had demonstrated the most confidence (by portfolio weight) and about which they had made an active decision to invest. As we explain in our video introduction to “Bond Replacement” investments, we are using these portfolio managers’ actions as an indication of undervaluation.

To be honest, I had never heard of this fund company or these managers before, but as I was doing a bit of research about the fund, I got more interested.

Mairs & Power is based in Minnesota, which is about as far from Wall Street as you can get in the US, and from what I have read, the separation is not only geographical. The firm espouses a value-based approach and points out how expensive and counter-productive high “turnover” (buying and selling of stocks in a portfolio) strategies are. The company gave a good overview of its investment philosophy in this white paper, entitled Focused Investing for the Long Term.

The firm has a Midwestern focus, so many of the stocks they buy are headquartered in that region of the US. That said, some – such as Qualcomm QCOM (which is not on this list because the fund’s holding is less than 2% of NAV) and Alphabet GOOGL – are not. The one reservation I had looking at the holdings list was that the firm owns 685,000 shares of Zimmer Biomet (ZBH), the firm that we featured in a full ChartBook and Guided Tear Sheet in December and decided looked pretty fairly valued.

The M&P Growth Fund has outperformed the index and its Lipper benchmark pretty consistently. You can read the fund’s third quarter 2016 letter here and Morningstar’s review of the fund here.

Please reach out if you have any questions about this spreadsheet!

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