In this Fund update, Andrew Adams, chief investment officer and lead manager of the Mairs & Power Growth Fund, and Peter Johnson, co-manager, discuss the Fund’s returns, drivers of performance in 2024, and what to look for in 2025. This was recorded on January 29, 2025.
Executive Summary
The Mairs & Power Growth Fund had another positive year and finished 2024 up 19.62%. For comparison, the S&P Total Return (TR) was up 25.02%, and the Fund’s peer group, as measured by the Morningstar Large Blend Category, was up 20.51% over the same period of time.
While the Growth Fund’s performance lagged its benchmark, much of that was due to the market being driven by a small group of mega-cap Technology stocks. Both sector allocation and stock selection impacted underperformance, although it was weighted more heavily toward stock selection.
Sector Performance
Over the last decade, the Technology headwind has decreased for the Growth Fund as the position has been built up from what was once a 10% underweight. In 2022, the Fund took advantage of the selloff in Technology companies to diversify into Technology stocks to a greater degree, meaning the Fund participated in the upswing of performance during the last two years. However, these companies, due to their size, had outsized weights in the index and significantly impacted index performance in 2024. The Fund’s performance was also influenced by a long-term emphasis on companies based in Minnesota and the Upper Midwest, meaning an overweight to the Industrials and Materials sectors, which faced headwinds due to high interest rates and a sluggish housing market.
On the flip side, the Financials sector was a positive contributor to performance in 2024, with several FinTech and major banks benefiting from resilient economic conditions and higher interest rates.
Positive Stock Selection
Several stocks positively impacted the Fund's performance. NVIDIA (NVDA) was the best-performing stock, returning a staggering 170% in 2024, driven by the continued excitement around artificial intelligence. Fiserv (FI) and JPMorgan Chase & Co. (JPM) also provided positive relative contributions, benefitting from the prospect of lower interest rates and easing regulations. Motorola Solutions (MSI) posted exceptional results, thanks to its successful product upgrade cycle and its dominant position within mission-critical communications.
Negative Stock Performers
On the downside, Graco (GGG) and Toro (TTC) were significant laggards. Both companies, tied to the strength of the housing market, were hit hard by the housing downturn as home buyers adapted to elevated mortgage rates. Despite the overall strength of the market, the housing sector continued to struggle. UnitedHealth Group (UNH) and Littelfuse (LFUS) were also detractors from relative performance.
Looking Ahead to 2025
We are optimistic about the next year, with significant investment in artificial intelligence expected to bear fruit in terms of financial results and earnings growth. Inflation and higher rates have been a massive headwind to many smaller companies, particularly those tied to the housing market, and the Fund is overweight to those small and mid-cap businesses. In our opinion, many of our companies in the Industrials and Materials sectors could benefit with lower interest rates, lower mortgage rates, and as a result, a better housing market. Finally, we are committed to our investment philosophy, maintaining our long-term, regional, and multi-cap focus, while also recognizing the outsized impact of mega-cap stocks on the market. We believe this is a differentiator that has provided historically above-average returns for more than 94 years.
Top 10 Fund Holdings (subject to change)
Expense ratio: 0.64%
S&P 500 TR Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market.
Morningstar large-blend portfolio are fairly representative of the overall U.S. stock marketing in size, growth rates, and price. Stocks in the to 70% of the capitalization of the U.S equity market are defined as large-cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate. These portfolios tend to invest across the spectrum of U.S. industries, and owing to their broad exposure, the portfolios’ returns are often similar to those of the S&P 500 Index.
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. Characteristics and other statistical measures refer to underlying stocks in the portfolio and do not represent or predict the performance of any fund.
Scott Howard is a registered representative of Foreside Fund Services, LLC.
All investments have risks. The Growth Fund is designed for 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.
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. Click Here for standardized performance.
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.