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

Our bottom-up, multi-cap approach incorporates Porter’s Five Forces of Competitive Position Analysis resulting in concentrated portfolios typically of 50 stocks.

IDENTIFY
STRONG
COMPANIES

New idea champion "flag carrier" builds a case

Consistent, long-term, above-average growth

Strong balance sheets

Multi-cap, multi-industry

DURABLE
COMPETITIVE
ADVANTAGES

Defined by Mairs & Power:

Existing competitive rivalry

Bargaining power of buyers

Bargaining power of suppliers

Threat of substitute products

Threat of new market entrants

EVALUATE
MANAGEMENT

Assess company management

In-person meetings

Historical capital deployment

VALUATIONS

High confidence in stable accelerating earnings growth

Attractive valuation

Trim or eliminate positions when long-term growth potential falls below average

Fixed-Income Process

Our fixed income team uses a bottom-up approach to credit to build fixed-income portfolios customized to address each client's specific risk tolerance, income and volatility managment needs. 

IDENTIFY
STRONG
ORGANIZATIONS

Credit quality is top priority

Stability greatly valued

Analyze over long-term time horizon

Primarily investment grade, experience in high yield

 

FIXED-
INCOME
ANALYSIS

Defined by Mairs & Power:

Perform fixed-income analysis, assessing duration, maturity & coupon

Mairs & Power model compares our view of credit to market

Constantly assess new opportunities; adjust as needed

 

INVESTMENT
STYLE

Buy and hold

Believe return is made upon investment, earned over time

Do not time the market, do not make large interest rate calls

Invest across corporate, municipal, agency bonds and structured products

Compare asset classes to achieve best risk-adjusted, after tax returns

 

RISK
MANAGEMENT

Multi-faceted

Laddered, call-protected maturities

Maintain liquidity

Diversify credit risk across names and sectors

Ongoing credit surveillance