Quick Take: The Marshall Funds:Mid Cap Value/Inv (MRVEX) hasn’t run away from its competitors over the last few years, but it has consistently stayed ahead of them.
The fund, which has total assets of $411 million, rose 35.9% last year, versus 35.8% for the average mid-cap value fund, and 28.7% for the Standard & Poor’s 500 index. For the ten years ended in December, the Marshall fund returned an average annualized 13.2%, compared to 11.6% for similar funds, and 11.1% for the index.
Matthew Fahey, who began managing Marshall Mid-Cap Value in 1997, seeks companies whose stocks have gotten beaten down because of a problem he thinks can be solved within two years. He looks to hold shares until the company recovers, then sell as growth-oriented investors move in and boost the stock to excessive valuations.
The Full Interview:
Don’t expect Matthew Fahey to stick around for the last out of a ball game.
“We get in early, in the second or third inning, and we leave in the seventh, knowing that they will keep going up in the eighth and ninth,” Fahey says, referring not to baseball but to stocks. The analogy illustrates how he manages the Marshall Mid-Cap Value fund.
Fahey likes to buy companies when they’re struggling, hold their stocks until they recover, then sell when the resulting improved share prices attract growth-oriented investors, who can push valuations higher than he wants to go.
In picking stocks, Fahey looks for those that are being overlooked or are temporarily out of favor because of some short-term problem that he thinks can be corrected within a year or two.
He prizes shares that are inexpensive compared to a company’s earnings, sales, or book value, among other value measurements. “We read the 52-week low list in the paper, not the 52-week high list,” Fahey says of himself and analyst Gregory Dirkse, who joined the fund in 2001.
Solid balance sheets, strong cash flow, and large market shares are on Fahey’s wish list, too, as are seasoned management teams with successful track records.
Where Wall Street estimates come into play, Fahey, who describes his investment style as “somewhat contrarian,” prefers stocks that most analysts’ have soured on. “To me, that’s very positive,” he says.
The fund typically owns 50-70 companies with market caps of $1 billion-$13 billion. Businesses of this size still have room to grow, but are less risky than smaller fare, Fahey maintains.