Our Investment
Process

Andrew Adams, Chief Investment Officer
Straightforward, Disciplined

Long-term. Regional Emphasis. Multi-Cap.

Our strong, decades-long success is the result of a straightforward process: We are long-term investors with a regional emphasis, investing in companies of all sizes across all sectors. We have an unwavering conviction in:

  • Our highly collaborative, proprietary investment process
  • Investing in companies, not markets
  • Investing in companies with historically strong returns on invested capital, consistent above-average growth and durable competitive advantages

Our Investment Philosophy

We believe the best way to make money for our clients is to consistently utilize a disciplined long-term investment approach. We focus on companies with consistent, above-average growth, strong returns on invested capital and durable competitive advantages.

Long-term Investors

  • Typical holding period is over 10 years
  • Low turnover approach allows for fewer, better thought-out investment decisions
  • Following companies for years allows for broad understanding of business strategy, competitive environment and end market business cycle impacts
  • Focus on a less efficient area of the market to potentially benefit investors who can take a long-term approach, unlike many active managers and hedge fund managers who focus on short-term catalysts 
  • Record of outperformance over full market cycles, typically better preserving capital in difficult markets

FULL ECONOMIC CYCLE PERFORMANCE CHARTS

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Regional Emphasis

Proximity Builds Conviction

  • Regional emphasis provides easy opportunities to meet regularly with management teams and build conviction in these companies
  • 150 visits annually with company management
  • Facilities tours and product demonstrations build a core knowledge base
  • Attempt to build relationships with company management, employees, customers and vendors 

A Landscape of Rich Opportunity

  • Invest where we believe the best opportunities are
  • Great pool of companies to choose from in Minnesota and the Upper Midwest - 68 Fortune 500 companies and 380 public companies (as of 6/30/2019)

Beyond the Region

  • Consider opportunities not available locally, given management access
  • Provide international exposure by investing in domestic companies with strong international strategies
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Why We Invest In Minnesota and the Upper Midwest (WI, IL, IA, SD, ND)

We believe there are significant benefits to proximity.

Multi-Cap Companies

  • Identify strong companies exhibiting the potential for long-term, above-average earnings growth, regardless of size or sector constraints
  • Invest in companies, not markets
  • Identify small companies that can compound over the long term: ideally companies with high rates of return and internal growth opportunities to deploy that capital
  • Not forced to sell good investments by arbitrary market capitalization rules

Our Investment Process

As bottom-up investors, we focus on companies, not markets. Our goal is to create a portfolio of stocks with the potential to perform well over full market cycles. Members of our Investment Committee closely monitor approximately 150 companies with dynamic upside and downside price targets for each of them. The 15 most attractive stocks are selected for our Recommended List and reviewed at our bi-monthly investment meeting. New ideas are championed by "flag carriers" who present Durable Competitive Advantage (DCA) analyses to the team for consideration.

Equity Process

We follow the below equity process to identify, analyze and evaluate companies, while adhering to the discipline of reasonable price targets for our Multi-Cap & Balanced Strategies.

 

IDENTIFY
STRONG
COMPANIES

Preference given to a regional universe of 400 companies, 150 companies closely monitored with dynamic upside and downside price targets:

  • Focusing on companies with consistent, long-term, above-average growth
  • Looking for companies with strong returns on invested capital
  • Investments made outside the region for sector diversification and exceptional opportunities

DURABLE
COMPETITIVE
ADVANTAGES*

A flag carrier does an in-depth analysis on each company looking at the following as interpreted by Mairs & Power:

  • Competition in the industry
  • Potential of new entrants into the industry
  • Power of suppliers
  • Power of customers
  • Threat of substitute products

Source: Porter’s Five Forces of Competitive Position Analysis 

EVALUATE
MANAGEMENT

Independently evaluate company management:

  • Independently evaluate company management:
  • Meet regularly with management teams
  • In-person meetings
  • Facility tours and product demos build a core knowledge base
  • Helps build conviction to weather bumps in the road. We don’t worry about short term stock performance; we want to benefit from long term success
  • Over 150 visits annually

VALUATIONS

Once conviction in a company is determined, dynamic upside and downside price targets are set:

  • 15 most attractive companies are selected for our Recommended List
  • Reviewed at bi-monthly Investment Committee meeting
  • Eliminate positions when opportunities don’t materialize or management is unable to execute

 

Fixed-Income Process

The primary objective of the fixed income portion of a Balanced Strategy is to provide regular current income while lowering the portfolio’s overall level of risk.

IDENTIFY
STRONG
ORGANIZATIONS

  • Credit quality is our top priority
  • Stability is valued greatly
  • Analyze using a long-term time horizon
  • Use primarily investment grade securities
  • Experienced in high yield

 

 

FIXED-
INCOME
ANALYSIS

  • Perform fixed income analysis, assessing duration, maturity & coupon
  • We use our proprietary model to compare our view of each credit’s value to the current market price
  • Constantly assess new opportunities and make adjustments to our views as needed

INVESTMENT
STYLE

  • Buy and Hold
  • As buy and hold investors, the price paid is a key determinant of the long term return
  • Do not attempt to time the market; do not make large interest rate calls
  • Invest across corporate bonds, municipal bonds, agencies, or structured products
  • Compare asset classes to achieve best risk-adjusted, after-tax return for client

RISK
MANAGEMENT

  • Laddered, call-protected maturities
  • Maintain liquidity
  • Diversify credit risk across names and sectors
  • Ongoing credit surveillance