Please enable JavaScript to view the comments powered by Disqus.

Mutual Funds

Welcome Back, Meridian Growth

A seasoned manager is back for a second tour of duty in the Kip 25.

The newest member of the Kiplinger 25 will be a familiar name to longtime readers. Meridian Growth (symbol MERDX), which appeared on the list of our favorite funds in the mid '00s, is back. Meridian replaces T. Rowe Price Mid-Cap Growth, which recently stopped taking money from new investors.

Meridian has compiled an impressive record investing in the same kinds of fast-growing, midsize companies the Price fund favors. Over the past decade through June 4, Meridian returned 7% annualized, an average of two percentage points per year better than Standard & Poor's MidCap 400-stock index and nine points per year ahead of the large-company-oriented S&P 500-stock index.

Rick Aster has run Meridian since its launch in 1984 (he was joined in 2007 by William Tao). Aster, who is based in Larkspur, Cal., runs a low-turnover fund that typically contains about 50 stocks. He looks for companies with strong balance sheets and a return on equity (a measure of profitability) of at least 15%. He wants firms that are well managed and serve expanding markets. And, unlike many growth managers, Aster is price-conscious when he purchases stocks. "I want companies that are not in fashion but will grow for several years," he says. He's held stocks such as retailer Bed Bath & Beyond (BBBY) and American Tower (AMT), which owns wireless-communications towers, for many years.

Bear-market protection


Aster accurately notes that his fund tends to hold up relatively well in down markets. It fell 46% during the 2007-09 calamity, nine percentage points less than the S&P MidCap 400 lost, and it positively shined during the 2000-02 bear market, during which it lost only 2% (the index dropped 23%). Meridian's steadfastness in down markets may reflect Aster's focus on financially solid firms, his concern about price and his inclination to trim positions when stocks get a bit frothy.

Historically, Aster says, his investment criteria have steered him toward stocks in the technology, health-care and retail areas, and, to a lesser extent, toward financials. He is particularly keen now on software companies; he looks for market leaders with growing international businesses. For instance, one of his favorites is Solera Holdings (SLH), the leading provider of software and services to companies that process auto-insurance claims. The San Diego company's software is also widely used by auto-repair shops, and the bulk of its sales are booked overseas.

In the stressed financial-services sector, Aster likes Willis Group Holdings (WSH), a leading insurance broker with a 25% return on equity and a modest share price. He also holds Bank of Hawaii (BOH), the market leader in the Aloha State.

Because Meridian is so intimately connected with one manager, one issue to weigh before investing is how long Aster, who turned 70 in May, will stick around. He tells us he has no plans to retire, so we'll take him at his word.

Meridian Growth's annual expense ratio is a reasonable 0.86%, and the fund's initial minimum investment is $1,000, also a modest figure.