Thyra Zerhusen of ABN AMRO Mid-Cap Fund

S&P Rank: 5 StarsJuly 31, 2003Bad Quar

Quick Take: Despite the market's ups and downs, there are always opportunities down the road, says bargain hunter Thyra Zerhusen, who runs ABN AMRO Mid-Cap Fund/N (CHTTX). The manager generally looks ahead to where a stock will be in one year; so, unlike many Wall Street investors, she doesn't mind if it has a bad quarter.

The mid-cap segment of the market often provides overlooked bargains that "fall through the cracks," according to Zerhusen, because investors more often focus on large- and small-cap stocks.

Looking ahead, the manager predicts gains for consumer discretionary stocks, including Reader`s Digest Assn (RDA), Scholastic Corp. (SCHL), and Borg Warner (BWA).

Zerhusen's strategy has met with success. For the five-year period through June, the fund rose an average annualized 9.2%, versus 5.4% for its mid-cap blend peers. This year through the end of July, the fund was up 24.5%, versus 18.2% for its peers.

The Full Interview:

S&P: Have you found fewer attractively-priced stocks because of this year's market rally?

ZERHUSEN: There is always something to buy. Companies have a bad quarter, so the stock falls. At the end of the first quarter, I found several attractive names, including Andrew Corp. (ANDW), Veritas DGC (VTS), and Reuters Group ADS (RTRSY).

S&P: What's your approach to valuations?

ZERHUSEN: I look at various criteria: price/earnings multiples, growth rates, and in some industries, market cap to revenue ratios. Right now, Reader`s Digest Assn (RDA) and Scholastic Corp. (SCHL) are selling at fractions of their revenues. Basically, my decisions are bottom up.

S&P: Scholastic has had difficulties over the years with various operations, including its book clubs.

ZERHUSEN: They've had the Harry Potter books for the last few years. They were recently weak, and the stock fell, so I added even more.

S&P: Why should investors consider mid-cap stocks?

ZERHUSEN: They fall between the cracks. Most stock holders focus on large-cap and small-cap stocks, so the mid-cap segment is somewhat overlooked and less efficient than other areas. You can find mid-cap companies that are growing faster than large-cap companies and have better liquidity than small caps. Also, it's easier to get access to managements of mid-cap companies than of large-cap companies. I talk to the CEOs of some of my mid-cap holdings.

Also, I often find companies that are not well covered by Wall Street analysts. I owned a stock that wasn't covered by any Wall Street analysts -- Wallace Computer -- that was taken over this year.

S&P: What is your turnover?

ZERHUSEN: I like to have a turnover rate of about 45% and aim for no more than 35 holdings. I do a lot of my own research, so I focus on a small number of companies. I don't want to have more than a 6% position in any one stock. Once it gets to 5%, I trim it.

S&P: The fund tends to be more volatile than its peers?

ZERHUSEN: Several holdings have been taken over, so I had to reinvest the money. Some of my new positions initially went down.

S&P: Why does the fund have good long-term returns?

ZERHUSEN: I can live with a stock that has one bad quarter. I always ask where could a stock be one year from now.

S&P: Would you mention a long-term holding that you particularly like?

ZERHUSEN: I've owned Amer Power Conversion (APCC) for a long time, but sometimes the stock runs up, so I periodically trim my holdings.

S&P: What are the largest sectors in the fund?

ZERHUSEN: Consumer discretionary is over 25% of the fund. My holdings in that sector include Readers Digest, Reuters, and Borg Warner (BWA). Information technology is over 20% of the fund. Stocks in that sector have risen, so I've been trimming some positions. I own Unisys Corp. (UIS), my biggest holding, Progress Software (PRGS), and Andrew.

Reprints Discuss this story
We welcome your thoughts. Please allow time for your contribution to be approved and posted. Thank you.

Most Recent Videos

Video Library ››