Quick Take: The Meridian Growth Fund (MERDX) shunned Internet and technology stocks in the late 1990s because portfolio manager Richard Aster Jr. thought they were too expensive.
However, Aster says he began moving into the tech sector last year because valuations there had fallen to levels he thought looked good. Technology and telecommunications stocks now make up about 30% of the assets of the $547 million fund.
Aster runs a concentrated portfolio of about 45 stocks, focusing on inexpensive shares of companies he thinks can increase earnings by 15% or more per year. He also favors financially strong industry leaders.
Aster’s approach has kept Meridian Growth ahead of similar funds, and the S&P 500, recently and over the long run. This year through August, the fund surged 31.6%, versus a gain of 23.4% for its mid-cap blend peers. For the five years ended last month, Meridian Growth returned an average annualized 17%, versus 12% for its peers, and 2.5% for the index.
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Less is more for Richard Aster Jr. The Meridian Growth fund that he manages usually holds only about 45 stocks. Increasing the portfolio’s membership would only pull its performance closer to average, he believes.
Concentrating the fund’s investments facilitates stock analysis and enables winners to significantly boost returns, Aster says.
“We would like to focus on the companies we like, understand them well, and make them count,” he says.
A company Aster liked enough to buy not long ago is Dollar Tree Stores (DLTR), a discount retailer that sells all its merchandise for the fixed price of $1. The company, which Aster began investing in within the last two months, has little debt, generates sufficient cash to finance expansion, and sports an approximately 20% return on equity, he says.
“I think their growth for the next three to five years is going to be fine,” Aster says. “The business is stable and the (stock’s) valuation is okay.”
Dollar Tree’s shares trade for around 19 times earnings, says Aster. The manager wants to own inexpensive stocks, a fact that he maintains distinguishes him from his fellow growth-oriented money managers.