Invest in the Market Like You Would an Individual Stock: Morris Capital

“We invest in the market like you’d invest in an individual company,” said Daniel Morris in a July 10 interview, “based on fundamentals and bottom-up analysis” of the market.

Morris, founder of Morris Capital Advisors in Malvern, Penn., and Joseph Doyle, CFA, together manage Morris Capital’s two no-load mutual funds—the Manor Fund (MNRMX—rated four stars by Morningstar) and Manor Growth Fund (MNRGX-rated three stars), along with separately managed accounts, primarily for high-net-worth individuals and small institutions. Rather than use “financial engineering” or event-driven investing that starts from the top down, Morris said the Manor funds’ approach is to “focus on what makes sense in long term investment management; the market always comes back to the fundamentals.”

That common-sense, fundamentals-driven long-term approach in mutual funds, Doyle argues, allows clients to sleep better at night, owing to mutual funds’ transparency. The MF Global scandal, he says, “is a teachable moment” for investors, showing the value of transparency and daily liquidity.

MNRGX has returned 5.57% year to date through July 12, 2012, according to Morningstar, and 17.4% over the last three years, with just 10% turnover. MNRMX has returned 1.22% year to date and 13% over the last three years, with turnover of 11.9%.

The investing approach for MNRGX starts with the universe of large-cap stocks that are then screened to include stocks with strong earnings, strong cash flow, a strong financial structure and strong future growth prospects (including management having a strategic vision for the company) that are “attractively priced” based on those business fundamentals that will provide a tax-efficient return over the long term. “You have to have comfort,” says Doyle (left), with the long-term growth prospects of the companies they choose for the portfolios.

Overlaying those fundamentals is a management process that values low turnover but allows Morris and Doyle to use their knowledge of the markets and the macroeconomic picture “so we’re not surprised,” Doyle says—as might be the case, for instance, with cyclical stocks. “As growth-oriented investors,” says Doyle, “we’re interested in three to five years of growth rate prospects.”

So do Morris and Doyle visit companies to kick the tires and talk to management? No, says Morris. “We don’t talk to management or listen to CNBC, because they don’t tell the truth,” he says bluntly. The fundamentals, by contrast, don’t lie, and Morris says “we don’t want to interfere with the fundamentals.”