BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Love Just One Fund

This article is more than 10 years old.

More than 8,300 mutual funds vie for your business, but a much smaller number can offer the ideal combination of good long-term performance and low fees. If you had to choose only one equity fund to invest in this year, which one would it be?

Our pick? Mairs & Power Growth , a fund that has been a perennial favorite of Forbes. This $2 billion (assets) U.S. equity fund has made numerous appearances on our Best Buy roster, which highlights the best funds based on five-year risk-adjusted return and low investment costs (we consider both sales loads and fees). This no-load fund has expenses of $0.75 cents per $100 in assets, about half the expense burden of the average for U.S. equity funds.

Mairs & Power shows an average annualized return of 11% for the past three years (through the end of December 2004), versus a paltry 3.5% for the S&P 500.

Measured by Forbes' long-term performance grades over four complete stock market cycles, Mairs & Power Growth is rated a B in up markets and a capital-preserving A in down markets. Prior to 2004 the fund had been on our honor roll for four successive years and would have qualified again last year except for the fact that its longtime manager, George Mairs III George Mairs III , retired from managing the fund, although he still remains on the investment committee. (Our Honor Roll rules require manager tenure of at least six years.)

Mairs' successor, William Frels William Frels , 65, has been with the company since 1992. He says he is committed to upholding the investing strategies and principles of his former boss. In a nutshell, this strategy confines most of the fund's investments to its own backyard, the Midwest. The fund is headquartered in St. Paul, Minn.

Frels says the commitment to local business is fueled by management's desire for firsthand information. Over the years, the fund has forged close relationships with executives of many of the stocks it holds. While his primary investing criteria are reasonable valuations and above-average earnings growth rates, Frels favors companies that are located nearby. "If you've got gold in your own backyard, why go elsewhere to prospect?" Frels quips.

One sector where Frels doesn't do much prospecting is technology, which currently amounts to just 4% of assets. But the reason is the industry's volatility rather than geography. One exception: Intel . Frels recently bought shares of the Santa Clara, Calif., chipmaker because he thought the company was a good value relative to the growth he feels it can achieve in the next few years. "We look to buy growth at a reasonable rate," says Frels.

Intel just announced record fourth-quarter revenue; for all of 2004 it delivered profits of $7.5 billion, versus $5.6 billion in the previous year. At a recent $23, Intel shares sell for 19 times their 2005 estimated earnings. Analysts surveyed by Thomson Financial First Call think the company can deliver 16% average earnings growth over the next three to five years.

While some funds put hundreds of stocks in their portfolios, Mairs & Power Growth currently has stakes in just 38 companies. This focused investing style also accounts for the fund's low portfolio-turnover rate, just 2% versus 72% for its category average.

The biggest holding of all, accounting for 4.9% of the fund's assets, is San Francisco-based financial services giant Wells Fargo , with retailer Target , which is headquartered in Minneapolis, a close second at 4.6%. Principal Financial , an Iowa-based insurance and asset management company, is another well-run Midwest company that Frels recently added to the portfolio.