CIO Growth Fund Update Recording

CIO Growth Fund Update Recording

March 24, 2020

Listen to Andy Adams, Chief Investment Officer and Lead Manager of the Mairs & Power Growth Fund, as he talks with Scott Howard, VP, Investor Relations Manager, on March 24, 2020 to provide an update of on current economic and market conditions and their impact on the Mairs & Power Growth Fund.

Executive Summary

Our investment philosophy remains focused on investing in companies with strong competitive positions for the long term. With that in mind, we are taking advantage of what we think is short term volatility in stocks that we know well to opportunistically add and trim positions.

Every correction impacts stocks and sectors differently. We believe that the broad-based, somewhat indiscriminate sell-off taking place has created a number of attractive investment opportunities.

Sectors

  • The Energy sector has been hard-hit. Fortunately, this sector represents a small part of the Growth Fund’s holdings. As a result, we have outperformed this sector so far this year.
  • The Financial sector has been the second-hardest hit sector so far this year, and one in which the Fund holds an overweight position. Extremely low interest rates will make it difficult for banks to generate much interest income. Fee-generating businesses, notably mortgage refinancing, will provide some offset.
  • The healthcare sector, another sector in which the Funds holds an overweight position, has been a relatively strong performer. As a result, we’ve trimmed some of our positions in this sector.
  • The Consumer Staples sector is also holding up well. We are trimming some of our holdings in this sector in order to purchase stocks in other sectors, which are down and more attractively valued.

Fund Additions and Trims

  • Over the past few weeks, we’ve added to our positions in high-quality companies whose prices have made them even more appealing. These companies include Microsoft and Visa.
  • We recently added Activision, a video gaming company we’ve been watching for over a decade.
  • In the past few weeks we have trimmed our position in companies where stock prices have held up well during this volatile time, such as Hormel Foods, General Mills and 3M.

Assessments

  • We regularly review the balance sheet quality of all the stocks in our funds. We focus on the operating leverage the companies have historically exhibited in past market down turns, and the amount of financial leverage they currently have. We identify which companies are more highly levered and adjust our positions accordingly.
  • Valuation estimates for this year, particularly for the second quarter, are extremely opaque. We’ve supplemented our forecast work with a historical earnings and cash flow base methodology. This has helped us identify longer-term opportunities.
  • We’ve also conducted a durable competitive advantage analysis of each of the companies we hold. We identify specific major customers in industries the companies are selling into. This has been especially helpful in assessing companies’ business exposures in this downturn.

As always, our main concern is for our clients and our employees. We hope all of you are staying safe and healthy. We have set up our office to make sure that we are available to you as we always have been. And we remain well positioned to help your portfolios ride out this storm.

 

Top 10 Fund Holdings (subject to change)

Mairs & Power Growth Fund 

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.