JP MORGAN MID CAP VALUE
JP Morgan fund finding profits in mid-cap value
Finding any fund that's beating the averages these days takes something. Even when the fund is part of an out-in-front category.
Mid-cap value funds have been having a pretty good run this year --- all things considered. For openers, of the 15 different types of funds that make up the Lipper U.S. Diversified Equity funds category, only three have year-to-date performance figures that are above water: As of August 16, there were: small-cap funds, ahead on average 14.31 percent; small-cap core funds, up 5.21; and mid-cap value funds, up 8.09 percent on average.
One of the fund's that's beating its category average is the J. P. Morgan Mid Cap Value Fund (800-521-5411). It was up almost 9 percent as of mid-August, has garnered a 5-star rating from Morningstar, and, at it's helm since the fund's inception in October 1997 is portfolio manager, Jonathan Simon.
Simon's performance record has been a solid one: At year-end in 1998, the fund closed up 19.8 percent; in 1999, it was up 13.9 percent; and last year, up 35.3 percent. Ask him if there's anything that could be misunderstood about the fund and he will tell you that it could be its past performance. "The danger is, it's been a good three years so that the compounded return has been quite high, So, there's a danger that people will think that it's a more aggressive fund than it really is, " says Simon.
With 72 stocks in its portfolio, here's more from Simon about the J.P. Morgan Mid Cap Value Fund (FLMVX):
Q: Tell me why the fund is outperforming others in its category?
Simon: We're not outperforming them by very much at the moment. But, it's hard to pinpoint why we're doing better.
Our stock selection with sectors has been good. And, we've had a small but significant exposure to the REIT sector. And those stocks have been doing extremely well.
Q: Why did you get into REITs?
Simon: Because they've been depressed and were trading at a discount to their underlying real estate values on average by about 15 to 20 percent, which is unusual. And we felt that in a tough earnings environment, the combination of steady cash flow, good dividend payouts and some growth prospects was a pretty powerful combination.
Q: When you're adding stocks to the portfolio, what kinds of things are you looking for?
Simon: What we're really looking for are what we would call qualitative factors. And, there are three main ones.
One is purely financial and includes return on capital and the free cash flow generation of a company. Another, business factors. Here we're looking for businesses that have some competitive strengths. Now there might be some cyclicality or some economic sensitivity here and that's okay. But what we really like are good steady, strong businesses.
And finally, management factors. There are management traits that we look for particularly in terms of long-term strategic planning. We look for management to know how to use and to deploy capital; managements that are flexible in areas like buying back stock or making acquisitions; and those that are very focused on increasing the underlying franchise value of the company on a per share basis.
Q: What are the top sectors the fund is invested into currenlty?
Simon: Financial services, about 29 percent, and about 23 percent is in what we broadly call consumer cyclicals. It's made up of a whole host of things and includes media companies like tv stations and newspapers, and retailers and restaurants.
In that sector the biggest names that we have now are E.W. Scripps, Mohawk Industries, they are the carpet manufacturers, and Outback Steakhouse.
In the financial sector, one holding would be Security Capital Group, a REIT that trades at a nice discount. Another is Bank North Group, a regional bank in Maine, New Hampshire and Vermont with strong market shares in those places. Then there's T Rowe Price.
Q: Anything that you'd like to tell potential investors about this fund?
Simon: I'd like to emphasis that this fund is 100 percent invested in equities and as such obviously has all the risk that comes with investing in stocks.
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