Farewell to a Kiplinger 25 Fund

Meridian Growth replaces T.Rowe Price Mid-Cap Growth, which is closing to new investors.

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.

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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.

Contributing Writer, Kiplinger's Personal Finance

Andrew Tanzer is an editorial consultant and investment writer. After working as a journalist for 25 years at magazines that included Forbes and Kiplinger’s Personal Finance, he served as a senior research analyst and investment writer at a leading New York-based financial advisor. Andrew currently writes for several large hedge and mutual funds, private wealth advisors, and a major bank. He earned a BA in East Asian Studies from Wesleyan University, an MS in Journalism from the Columbia Graduate School of Journalism, and holds both CFA and CFP® designations.