Our Confidence Remains High in This Underperforming Fund

Tony Thomas: After a relatively dismal 2017 and early 2018, investors might wonder why Mairs & Power Growth retains its Silver rating. The answer is simple: The managers' conservative view of growth hasn't been in favor lately, but it's the type of strategy that proves itself in the long run.

Not that long ago, this fund was near the top of its class. In 2016, it beat 96% of its large-growth Morningstar category peers. But the story has been quite the opposite since then. Through late-April 2018, the fund trailed 95% of its peers and lagged well behind its S&P 500 benchmark.

What has caused this underperformance streak? It's not that managers Mark Henneman and Andy Adams have changed their process. They still seek steady, modest growers across the market-cap spectrum, and they still favor firms based in the upper Midwest. The reason their fund has struggled lately is that these core principles largely kept them out of the hard-charging, large-cap tech stocks that have dominated for much of the past 16 months. Because Henneman and Adams stick to their principles without getting caught up in the market's enthusiasm, they might have periods of severe underperformance, but theirs is the kind of conservative, low-turnover, nothing-flashy approach that tends to work well over the long run. That's what gives us confidence in the fund's long-term prospects.