Fund Profile: The Aston Optimum Mid-Cap Fund
by Ann C. Logue
Investment styles fall into two main categories, diversification and concentration. With diversification, investors try to reduce risk by owning a little bit of everything. The drawback is that it can put a damper on returns. With concentration, an investor tries to beat the market by owning just a few things but knowing them intimately and using research to reduce the risk. That's the approach Thyra Zerhusen takes with the Aston Optimum Mid-Cap Fund, which tries to place its $865 million in assets in just 40 stocks.
Zerhusen took the fund over in 1999 after stints at several different investment shops including the Sears, Roebuck pension fund. She does not blink in the face of a tough market cycle. "We like companies that have strong products and the ability to grow market share," she says. By keeping the portfolio concentrated in just a few companies, she and her staff are able to follow them closely. That helps them determine if it's the market that's weak or the underlying business. She prefers to buy stocks where she can get to know the management and has comfort in the long-term health of the company and its markets. She looks for low debt levels and relatively low price/earnings/growth, price/cash flow and price/revenue models. She's found that these companies may not be in demand with other institutions, but they often make fine takeover candidates. "Every year we've had takeovers except for one," she says, and she expects more this year as international companies take advantage of the weak dollar to expand.
The Aston Optimum Mid-Cap Fund defines mid-cap as a company with a market value of between $1 billion and $12 billion, and it prefers those that reached that size through a single line of business. The fund's largest holding, at 5.5% of assets, is New York Times Co. (NYSE: NYT), owner of the eponymous newspaper and other media properties. Next is FMC Technologies (NYSE: FTI), at 5.16% of assets. The company makes industrial equipment used for everything from undersea oil drilling to food processing. The fund's third holding, 3.98% of funds under management, is Manpower (NYSE: MAN), which offers job placement and temporary help services in 80 countries around the world. Zerhusen cites Manpower as a great example of how research pays off. The stock was down on fears of a U.S. recession, even though it makes most of its money overseas. That created a fabulous buying opportunity. The fund's largest sector weighting is information technology at 26.88% of total assets, followed by consumer discretionary at 19.43% and industrials at 15.69%. The fund holds a total of 42 different stocks now; Zerhusen says that she'll be looking to trim back to 40 — unless one or two companies get acquired soon.
Aston's funds are sold at no load to individuals. The Mid-Cap Fund has a 0.25% 12b-1 fee and a total expense ratio of 1.15%, lower than the average fund in the category. No surprise given the style, fund turnover is just 45% per year, which makes this a good choice for taxable accounts. The minimum investment is $2,500. (There's also an institutional version of the fund, with a very different fee structure and a $2 million initial investment.)
For the quarter ending March 31, the Aston Optimum Mid-Cap Fund is down 8.72%. That's better than the S&P 400 Mid-Cap Index, which finished the first quarter down 8.82%, and the average fund in the Morningstar Mid-Cap Blend category, which is down 9.75%. It beats the benchmarks over longer periods, too. For the last five years, the fund has an average annual rate of return of 18.08%, compared with 15.10% for the S&P mid-cap index and 14.30% the average competitor. For the last 10 years, including the bear market that kicked off the decade, the fund's average return is 10.30%, better than the 9.02% for the S&P benchmark and the 6.77% of the Morningstar objective.
In this market, Zerhusen plans to do what she does best: knowing companies well and taking a long-term perspective with them. "We have to get through this whole thing, this volatility," she says. "We don't expect this market to do much here, but you can pick stocks." With low prices abounding, a mutual fund investor should be happy with a similar strategy, finding good funds and holding them for the long haul.
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