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What Fires Up Mairs & Power

Homegrown stocks and talent drive the Minnesota firm's long-term success.

Daniel Culloton and Josh Koeck, 12/20/2010

This article first appeared in the December 2010/January 2011 issue of Morningstar Advisor magazine. Get your free subscription here.

When Glenn Johnson first interviewed for a job at Mairs & Power, one of the partners at the St. Paul, Minn., investment firm asked whether he minded being a generalist. Not at all, replied Johnson. He'd covered a variety of sectors in 20 years as an analyst and manager in Twin Cities wealth-management outfits.

But that wasn't what Johnson's interrogator meant; he wanted to know whether Johnson would mind painting walls, making coffee, and taking out the trash.

The exchange may have been a joke. But it reveals a lot about Mairs & Power. You don't go there to be a rock-star fund manager. Indeed, though the firm has been around for nearly 80 years and has almost $4 billion under management, its investment profe-ssionals are hardly household names, and they don't want to be. They are there because they share the firm's affinity for frugality, humility, diligence, and patience and its passion for long-term investing and Midwestern stocks, particularly those located near its Minnesota home.

Deliberate and Provincial
Money may never sleep on Wall Street, but 1,200 miles away, in offices overlooking the Mississippi River, Mairs & Power moves at a languid, some might say somnolent, pace. It has launched just two mutual funds since George Mairs Jr. founded the firm in 1931. Portfolio turnover at both Mairs & Power Growth MPGFX and Mairs & Power Balanced MAPOX is lower than some index funds, and personnel turnover isn't much higher. The firm does virtually nothing to promote or market itself, and as recently as 2002, both funds were only available in about two dozen states. (They're nationwide now.) Lots of firms like to compare themselves with the tortoise in Aesop's fabled race, but Mairs & Power makes that turtle look like Usain Bolt, the world-record-holding Jamaican sprinter.

"If you walk around this office, there's no way you can tell if the market is up 30% or if it's down 30%," says Mark Henneman, a Mairs & Power Growth comanager who joined the firm six years ago.

The firm's deliberateness is not the only quality that sets it apart, though. It takes the idea of staying within its circle of competence to, some might say, an extreme. It specializes in stocks headquartered near Minneapolis-St. Paul and the upper Midwest. About two thirds of Mairs & Power Growth's assets are in Minnesota stocks, and three fourths are based in the Midwest. Mairs & Power Balanced ventures farther afield but retains a Midwestern and Minnesota bias.

The pace and provincialism have been good for Mairs & Powers' fund owners. There aren't many funds that have been around as long as the firm's offerings, but the Mairs & Powers funds have been competitive with the best of them. Since their inceptions, the Growth and Balanced funds have posted returns that rival much more heralded contemporaries, such as American Funds Investment Company of America AIVSX and Dodge & Cox Balanced DODBX. From its November 1958 inception through early October 2010, Mairs & Power Growth gained a little more than 11% annualized and would have turned a $10,000 investment into more than $2 million, similar to the returns of Investment Company of America over the same time period. Mairs & Power Balanced fund gained 9.6% annualized and would have grown an initial $10,000 investment to more than $940,000 from its January 1961 birth through early October 2010, which is similar to the performance of Dodge & Cox Balanced. PAGEBREAK

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