Fund Watch
Farewell to a Kiplinger 25 Fund
Meridian Growth replaces T.Rowe Price Mid-Cap Growth, which is closing to new investors.
By Andrew Tanzer, Senior Associate Editor, Kiplinger's Personal Finance
May 14, 2010
T. Rowe Price Mid-Cap Growth (symbol RPMGX) will stop taking money from new investors after the market closes on May 28. Ably steered by Brian Berghuis since 1992, Growth has returned an impressive 7% annualized over the past ten years through May 12. If you want to boost your exposure to the stocks of midsize growth companies, then consider buying this fund before it shuts its doors. If you already own shares, consider yourself fortunate and hold on to them.
As is our custom when a member of the Kiplinger 25 closes, we sadly bid farewell to this fine fund. But happily we’ve found a worthy replacement in Meridian Growth (MERDX), which invests in the same kinds of companies. Rick Aster has run Meridian since its launch in August 1984 (he was joined in 2007 by William Tao). Over the past decade, Meridian returned an impressive 9% annualized, an average of two percentage points per year better than a Standard & Poor’s MidCap 400-stock index and nine points per year ahead of Standard & Poor’s 500-stock index, which is oriented toward large companies. Since the fund’s inception, it has returned 13% annualized, besting the midcap index by one point per year and the S&P 500 by two points.
Aster, who’s situated 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.
Aster notes, accurately, that his fund tends to hold up relatively well in down markets. It lost 46% during the 2007-09 calamity, nine percentage points less than the S&P MidCap 400, 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 valuations and his inclination to trim positions when prices 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 valuation. 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 turns 70 on May 25, 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 initial minimum investment is $1,000, also a modest figure.
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Reader Comments (2)
Posted by: Limoman at 05/14/2010 04:40:59 PM
MERDX? Well, maybe.. but It only beat the Mid Cap Index by ave of 1% apy? But it also ate up 1% yr in Expenses, Right?And even if it did make 1% net apy more, that would take about 70 yrs to make double more, 35 yrs to make 50% and 18 yrs to make 25% more than just own the index and the heck with it! Right? I don't know, just asking.. And Why not just Go with a Balanced Fund like a VWELX that has done 9% apy for past 15 yrs too! or a FPACX, OAKBX, PRWCX Bal. Funds.. ave 10% apy..and be done with it..And give yourself more time to sit on the couch and watch Football and do some Bar-B-Quing..or Go Fishing or Golfing.. and when Retire? Just move it into some conservative Bal Funds like VWINX ( 8% past 15 yrs ) or Income funds like BERIX and FSICX? also ave 8% apy..But I would guess, if your a Trader ( Shorter Term - less than 5 yrs) investor, I guess those other Funds would be ok to play with.. just get out of them before they loose -30% like MERDX did or -40% like RPMG did..and only has ave a 6.5% apy for the past 10 yrs..Your Bonds have done better than that..I don't know , just asking and what M* and your colleges have talked about in other columns..
Posted by: Limoman at 06/16/2010 05:00:08 PM
Well Both Mid caps were in my Portfolio for yrs before 95' and then? I saw the Forest thru the trees.. Just comparing them to Balanced Funds and for the past 10 yrs now? Guess Which has made me more $? and since Meridian Has been in business for a couple of decades? How come it only has so little $ invested in it? I'm sorry, I always compare whatever fund it is to my Balanced Funds and go back to a Min. 1995 if can..FPACX,OAKBX,PRPFX,PRWCX for openers..