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Growth With an Emphasis on Safety

Jay Sekelsky, co-manager of Mosaic Investors fund, favors shares of high-quality, consistent growers selling at a reasonable price.

Some managers make a career out of betting big on little-known companies. Not Jay Sekelsky. The maestro of Mosaic Investors invests only in proven firms. "We prefer established growth over emerging growth," he says. "That means that we would rather count on 10% to 15% growth each year than bet on a company that might deliver 25% to 30%."

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Sekelsky seeks growth, but he's not willing to pay any price for it. That makes him a "GARP" investor -- someone who seeks growth at a reasonable price. Sekelsky and co-manager Richard Eisinger evaluate companies based on the projected growth rate of their earnings. They also look at each stock's historical valuation and compare it with that of the overall market. "We're attracted to consistent growers with great business models and solid track records, but we only buy them if they're trading at an attractive price," says Sekelsky.

Mosaic didn't always follow this strategy. The fund, run by Madison Investment Advisors, in Madison, Wisc., began in 1978 as a balanced fund called Bascom Hill Investors. In 1996, Madison converted the fund to a pure stock fund and renamed it Mosaic Investors. Sekelsky joined the fund in 1991, after spending two years as an investment officer at Wellington Management.

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Take a peek at Mosaic's portfolio and two things stand out. The first is that it only holds 29 stocks. "We don't want to dilute our ideas," Sekelsky says. "We believe that to make money, you can't be like the market." Also distinctive is the absence of energy names. Says Sekelsky: "We look for consistency of earnings and repeatability of past trends. Most cyclical companies can't meet that hurdle." It's not surprising that the fund's value-oriented screens have been steering it toward big blue-chip companies, such as Wal-Mart, Johnson Johnson and Berkshire Hathaway, that have been out of favor for most of the past six years.

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By avoiding overpriced stocks, Sekelsky says, he also avoids the most volatile and risky segments of the market: "Managing risk is the most important thing to us. We want to participate as much as we can in up markets, and protect ourselves in down markets." The fund's performance during the last bear market supports this point. Between March 24, 2000, and October 9, 2002, Mosaic Investors lost 10%, while Standard Poor's 500-stock index plunged 47%.

Of course, the fund endures dry spells from time to time. Such was the case in 2005, when Mosaic lost 3%, trailing the SP index by eight percentage points. "Overall, stocks that are known for their long-term solid results were overlooked, while lower-quality stocks were responsible for the bulk of the market's advances," Sekelsky wrote in the fund's 2005 annual report.

But in the long term, Mosaic delivers. Over the past decade to October 2, the fund has returned an annualized 9%, placing it among the top 15% of funds that invest in large companies with a blend of growth and value attributes. During that period, it also topped the performance of the SP 500 index by an average of half a percentage point per year.

Lately, Sekelsky has been high on health-care stocks and has doubled the fund's exposure to that sector over the past year, to 20%. One favorite is Stryker (symbol SYK), a maker of orthopedic implants with a consistent record for growing earnings. The stock, which closed at $52 on October 30, has appreciated about 20% since Sekelsky added it to the portfolio. He also bought biotech giant Amgen (AMGN) earlier this year. "Here's a high-quality company with good management, a great business model and annual growth in the upper teens," Sekelsky says. "We've been attracted to this company for many years, but could never afford to own it before."

Mosaic charges 0.94% annually for expenses, which is well below the 1.44% average for its category. The fund (MINVX; 800-368-3195) requires a minimum investment of $1,000, making it a nice choice for beginning investors.

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