T. Rowe Price Mid Cap Value: Mid-cap and Value Rolled Into One
If you're into value investing and enjoy owning a portfolio of stocks made up of companies that aren't too big--- or too small---here's a mid-cap value fund worth investigating.
The T.Rowe Price Mid-Cap Value fund (800-638-5660), around since the summer of 1996, and managed by David Wallack since year-end 2000, has managed to garner quite a record: In the past three years, ending June 30, the fund's average annual total return was a positive 12.75 percent, according to Lipper. The fund also gets top scores when it comes to Lipper Leaders' receiving top honor checks under the following headings: total return; consistent returns; preservation of capital and expenses.
Wallack defines mid-cap companies as those having a market capitalization of $1 to $12 billion and typically keeps between 80 and 120 stocks in the fund's portfolio. Currently, the tally is 120. "We are still finding plenty of good things to buy at good prices, " says this fund manager who uses a bottom-up investment approach when looking for companies to invest in.
Here's more from Wallack about the T.Rowe Price Mid-Cap Value Fund (TRMCX):
Q: Tell me how you manage this fund?
A: Diversification is part of the strategy. But the hallmarks of the strategy are that we are trying to buy good companies at good prices which is to say that we like to buy franchise companies with established products and services and brands that have stood the test of time. We try to buy them right and that often means buying them when they are unpopular. So there is a tendency for us to gravitate toward out-of-favor or neglected stocks. And, we look for management's who are addressing whatever issues may have befallen the company; for companies that have financial flexibility; and, ones that have good balance sheets.
Q: Can you give me an example of a company that fits that strategy?
A: A good example is KMart. Now before you laugh, KMart is a company that's been around for a long time---100 years in one for or another. It started out as SS Kresge.
KMart was in bankruptcy until a couple of months ago. In the course of bankruptcy, they were able to shut down almost one-third of their stores, obviously the least profitable; they were able to effectively write-off seven billion dollars in debt; emerge with the strongest stores in tact; and, with new management.
The appeal of KMart is that they are starting life over with a clean balance sheet and can focus more on merchandising in the stores. One of its core strengths is that it has stores in regions that have been hard to penetrate by Wal-Mart and so have stores in urban locations in the north, east, upper mid-west and southern California. And by emphasizing Hispanic and African American populations, they really do have a definable niche.
Q: When did you buy them?
A: In the past couple of months. So this is a company that we still think has a franchise intact, where there is room for improvement in the margins, that has experienced new management and financial flexibility.
Q: What about the Martha Stewart factor?
A: Martha Stewart is one of about half a dozen brand name relationships that KMart has. They also have relationships with Disney, Joe Boxer and a series of others. So they actually have a brand strategy. It seems to me that Martha Stewart's penchant for fashion and style is still respected and in tact. But, if we are going to buy these companies right, we have to buy them when they have some problems and then try to give the management's time to fix those problems.
Q: What about a stock that didn't work out for you?
A: Tupperware would be an example of that. We also try to protect ourselves on the downside and if we fail, it's because we basically didn't correctly identify the decline in this business--- which was the case with Tupperware. It was a company that we bought in the high teen's and ended up selling in the mid-teen's. And an example of a franchise that wasn't.
Q: What are the biggest risks when investing in this fund?
A:The biggest risk is that we will tend to lag in an aggressive bull market. There are clearly cycles to value investing and this fund could easily lag mid-cap growth funds or the overall market. But over multiple years, you have to keep what you earn to have decent returns and that's what I try to do.
Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.
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