5 / 5 Stars
5 5 1
Zacks Investment Research
1 (Strong Buy)
Standard & Poor's
5 / 5 Stars
#1 in Moderate Allocation
U.S. News evaluated 278 Moderate Allocation Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.
The fund has returned 21.92 percent over the past year, 14.05 percent over the past three years, 8.04 percent over the past five years, and 8.36 percent over the past decade.
|Trailing Returns||Updated 05.31.2013|
|Year to date||10.0%|
|3 Years (Annualized)||14.0%|
|5 Years (Annualized)||8.0%|
|10 Years (Annualized)||8.4%|
While lots of funds search overseas and in emerging economies for investment opportunities, fund manager Bill Frels prefers the comfort of his own backyard in Minnesota. "We tend to have a fairly significant representation of Midwest companies," Frels says. "Our expertise is greater there." But being headquartered in Minnesota, Illinois, or Michigan isn't the only qualification a company needs to catch Frels' eye. He's also looking for strong companies that pay a dividend and have sustainable growth potential. "We tilt toward stocks that pay income," Frels says. "We're really looking for an equity portfolio on the conservative side." This element of the fund is designed to appeal to investors who are retired or just looking for a more conservative and less volatile fund, he says.
As of June 05, 2013, the fund has assets totaling almost $469.66 million invested in 272 different holdings. Its portfolio consists of domestic value stocks and short-term corporate bonds.
To meet the fund's stated objective of investing in securities that yield at least 25 percent more than the average yield of stocks in the S&P 500, Frels turns to what some have called riskier, mid-quality corporate bonds. Frels doesn't see it that way. "We think we're not investing in risky bonds, even though some of our bonds have ratings below investment grade," Frels says. "Moody's and the S&P have gotten overly conservative as a result of the mortgage rating debacle. Some of these corporate bonds have pretty good qualitative characteristics [despite] their ratings."
The fund generally has between 50 and 60 percent of its assets in large, well-known stocks such as 3M, General Mills, and Johnson & Johnson. Frels diversifies the portfolio with a significant portion of bonds--including some riskier mid-quality bonds--a strategy that diverges from the category norm. The fund has held up fairly well during tough economic times, performing better than its category average and benchmark in both the 2000 tech meltdown and the recent financial crisis. The fund has returned 21.92 percent over the past year and 14.05 percent over the past three years.
Over the long term, the fund's stock selections have buoyed returns, and in general, the fund has been less volatile than its peers, Morningstar says. The fund has returned 8.04 percent over the past five years and 8.36 percent over the past decade.
Fund manager Bill Frels generally buys mid- to giant-cap stocks with dominant market positions, strong fundamentals, and growth potential. According to Morningstar, Frels "buys what he knows" and favors firms located in or around Mairs & Powers' home state of Minnesota. But Frels will branch out somewhat to consider other companies in the Midwest. Although he's fairly conservative with his value-stock picks, Frels ups the ante with his bond investments, which are more likely to stray into the mid-quality range than bonds in other moderate allocation funds. Frels also likes to hold onto stocks for years--the fund's turnover rate is usually below 20 percent--which keeps trading fees in check.
Role in Portfolio
Morningstar calls this fund a “core” investment.
Bill Frels, chairman and CEO of Mairs & Power, Inc., has managed the fund since 1992. He has also managed its sister Growth Fund since 1999, taking the helm in 2004. According to Morningstar, Frels is one of the longest serving and most seasoned hybrid fund managers. In 2006, Ronald Kaliebe joined the fund as co-manager.
Mairs & Power Balanced Fund has an expense ratio of 0.74 percent.
A large equity share concentrated in about 50 names in select sectors makes the fund somewhat susceptible to market volatility. Frels' willingness to invest in so-called mid-quality bonds also poses a risk.