Quick Take: Daniel Coleman, manager of WM Mid Cap Stock/A (WMCAX), invests in companies with market caps of $1 billion to $10 billion. Companies of that size tend to be more seasoned and less risky than small caps, but “they’re not so big that they can’t grow for a number of years,” he says.
In trawling for medium sized companies, Coleman looks for those with growing earnings whose shares have gotten pressured because of some condition that he considers transient.
Coleman’s fund, with total assets of about $79 million, was the top performer among mid-cap value funds in the second quarter this year, returning 4.7%, versus 1.3% for its peers. So far this year through June, the WM fund gained 7.8%, versus a 6.4% rise for its peer group. For the three years ended in June, WM Mid Cap returned an annualized 6.7%, while similar funds rose 8.1%.
The Full Interview:
Daniel Coleman doesn’t make big sector bets in running the WM Mid Cap Stock Fund, and he limits each individual stock to about 2% of its assets.
Positions of that size “create enough bang for the buck” in a given industry, while focusing the portfolio on around 50 stocks facilitates research, he says. That number is not so great “that one person can’t look at them and have a good handle on what the companies are doing,” says Coleman, who works with a team of five analysts.
In picking stocks, Coleman looks for fundamentally sound companies whose stocks have gotten beaten down for what he judges to be only a temporary problem.
He leans towards businesses with bottom lines that are growing as rapidly or faster than the overall economy, and whose shares are inexpensive compared to things like the company’s earnings or book value. Good returns on equity and invested capital, strong balance sheets and cash flow, and low debt are on his check list, too. Beyond that, he likes to see a competitive advantage, like a unique product or a patent. Coleman hunts among companies with market caps of $1 billion to $10 billion.
A typical investment for the fund, Coleman says, is Mandalay Resort Group (MBG) a hotel and casino operator he bought about a year ago. At that time, the fund manager expected a convention center that the company was opening in Las Vegas to boost its gaming and food revenues, and, consequently, its profits. Mandalay’s share price was depressed, however, because people were fearful of the industry’s prospects, Coleman says.
Gaming companies have since perked up along with the economy, however, and Coleman’s wager on Mandalay is poised to pay off. In June, the company agreed to be acquired by MGM MIRAGE (MGG) for cash.