In this Fund update, Kevin Earley, lead manager of the Mairs & Power Balanced Fund, and Brent Miller, co-manager, discuss the Fund's first-half performance, highlight notable portfolio holdings, and share their outlook for the remainder of 2026. This was recorded on July 22, 2026.
Executive Summary
The Mairs & Power Balanced Fund (MAPOX) delivered a 6.14% return in the first half of 2026. After several years in which a small number of very large companies dominated market returns, the Fund managers were encouraged to see performance broaden across sectors, styles, and market capitalizations. This environment rewards the Fund's diversified, valuation-sensitive approach. Asset allocation was a modest positive during the period, as the portfolio's overweight to equities benefited from stocks outperforming bonds. The equity portion of the portfolio slightly lagged its asset class benchmark, while the fixed income portion outperformed.
Equity Performance
The Fund's overweight to equities added value at the asset allocation level, though stock selection modestly detracted from performance. Two medical device holdings weighed on results: Abbott Laboratories (ABT) worked through a price reset in its nutrition business, alongside near-term competitive pressures in its atrial fibrillation and diabetes franchises, which pushed earnings expectations lower. Medtronic (MDT) lagged as recent investments and several new product launches have not yet translated into higher revenue and earnings. In both cases, the managers expect pipeline progress and new product launches to improve growth outlooks over time.
In the Financials sector, fintech provider Fiserv (FI) also lagged. After a difficult 2025, the company is in turnaround mode, working to improve client service while investing in new product development. The recent resignation of its CEO after just 18 months on the job added a layer of uncertainty that weighed on the shares, though the Fund managers remain confident in the company's strategic direction and positioning.
These headwinds were substantially offset by strength in Information Technology. Texas Instruments (TXN) and Entegris (ENTG) outperformed on an improving outlook for semiconductor demand and related capital investment, while Littelfuse (LFUS) benefited from accelerating demand for its circuit-protection products used in the construction of data centers.
Notable Portfolio Additions
There were two notable additions to the Fund during the first half of 2026:
- Waste Management (WM) — As the largest waste collector in the United States, with roughly 18% market share, it benefits from high route density and vertical integration, with more than 70% of what it collects going to its own landfills. Diversified across collection, recycling, and landfills, it is positioned for whatever shifts may come in how waste is handled.
- Palo Alto Networks (PANW) — Network security is currently the highest spending priority for companies and continues to grow as a priority, with the rise of AI only increasing its importance. There were worries earlier in the year that AI might upend parts of the cybersecurity industry, but the Fund managers saw an attractive opportunity to start a poisition before the stock more than doubled over the following three months.
Fixed Income Performance
The bond portfolio outperformed its asset class benchmark. On the interest rate side, geopolitical turmoil drove considerable volatility in global energy markets as rising oil and gas prices increased inflation expectations and raised the 10-year Treasury yield. With duration positioned short of the benchmark, the portfolio benefited modestly from the higher-rate environment. On the credit side, the portfolio remains overweight corporate credit and underweight government debt. Given continued economic growth and positive credit conditions for the Fund's fixed income holdings, spreads were mostly unchanged, so credit had only a negligible effect on relative performance, while favorable security selection provided a modest benefit.
Outlook for the rest of the year
For nearly 100 years, Mairs & Power has applied a consistent, long-term investment process, and the managers remain confident in it as they look to the rest of 2026 and into 2027. On the equity side, the team seeks to identify high-quality companies with durable competitive advantages, buy them at attractive valuations, and build a diversified portfolio aligned with a long-term investment focus. On the fixed income side, the team concentrates its research and portfolio construction on corporate credit, with an aim to provide shareholders with outperformance versus comparable government credits across an entire market cycle.
The Fund remains committed to its long-term approach of balancing capital growth, current income, and preservation of capital, and to leveraging market volatility to invest at reasonable valuations.
Disclosures
Top 10 Fund Holdings (subject to change)
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Expense ratio: 0.72%
The Composite Index reflects an unmanaged portfolio of 60% of the S&P 500 TR Index and 40% of the Bloomberg Barclays U.S. Government/Credit Bond Index. It is not possible to invest directly in an index.
Morningstar US Fund Allocation-50% to 70% Equity Category is designed to benchmark target-date and target-risk investment products. Index isbased on well-established asset allocation methodology from Ibbotson Associates, a Morningstar company. Index has 60% global equity exposure and 40% global bond exposure. It is not possible to invest directly in an index.
The S&P 500 TR (Total Return) Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market. It is not possible to invest directly in an index.
The Bloomberg U.S. Government/Credit Bond Index is a broad-based flagship benchmark that measures the non-securitized component of the U.S. Aggregate Index. It includes investment-grade, U.S. dollar-denominated, fixed-rate treasuries, government related and corporate securities. One cannot invest in an index.
Duration is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates.
All investments have risks and loss of principal is possible. The Balanced Fund is designedfor long-term investors.
Equity investments are subject to market fluctuations and the Fund’s share price can fall because of weakness in the broad market, a particular industry, or specific holdings.
Investments in small and midcap companies generally are more volatile. International investing risks include among others political, social or economic instability, difficulty in predicting international trade patterns, taxation and foreign trading practices, and greater fluctuations in price than U.S. corporations.
The Balanced Fund is subject to yield and share price variances with changes in interest rates and market conditions. Investors should note that if interest rates rise significantly from current levels, bond total returns will decline and may even turn negative in the short-term. There is also a chance that some of the Balanced Fund’s holdings may have their credit rating downgraded or may default.
The Funds’ investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus and summary prospectuses contain this and other important information about the Funds, andmay be obtained by calling Shareholder Services at (800) 304-7404, or by visiting www.mairsandpower.com. Read the prospectus and summary prospectuses carefully before investing.
Foreside Fund Services, LLC. is the Distributor for the Mairs & Power Funds
The statements and opinions expressed are those of the speakers and are as of the date of this call. All information is historical and not indicative of future results and subject to change.
Pete Slattery is a registered representative of Foreside Fund Services, LLC.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance as of the most recent month end is available by calling 800-304-7404.
The mention of specific securities is not intended as a recommendation or an offer of a particular security, nor is it intended to be a solicitation for the purchase or sale of any security.