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By David Falkof | 01-03-2013 12:00 PM

Mairs & Power Getting Growth From Abroad

As stateside growth remains sluggish, Bill Frels and Mark Henneman--Morningstar's 2012 Domestic-Stock Fund Managers of the Year--note that some of their top long-term holdings are going beyond boundaries.

David Falkof: Let's talk about some of the top performers this year, why the fund did so well. One of the top holdings, Valspar, is a Minnesota-based company and very good long-term performer, and particularly this past year.

Bill Frels: Fortunately, Valspar was one of our larger holdings and then became the largest holding in the fund because of significantly better-than-expected performance. We certainly weren't looking for the performance that Valspar eventually gave us over the course of the year, even though we've owned the company for quite a few years and have had management into our office. We have made visits there on a number of occasions, and we are very familiar with it. But Valspar did some things establishing their Valspar-branded paint and also margin improvements. And I think some of their markets turned out to be a little stronger than many had expected earlier in the year, and despite a pretty lackluster economy, they were able to really show strong relative earnings performance, which gets investors' attention pretty quickly these days.

Mark Henneman: I think that a number of things happened kind of all at once for Valspar. I mean a lot of people are now planning on a recovering housing market, and of course, people need to paint their new homes. And I think they look at Valspar as a way to play that. But back to what Bill said that branded Valspar paint, which you can buy Lowe's, that change happened a little over five years ago, and the company continues to benefit from that because they are achieving better-than-expected margins on what is now their branded paint. We think that Valspar has done an excellent job of building a durable competitive advantage around itself.

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