MOSAIC INVESTORS FUND

Jay Sekelsky has been the lead portfolio manager on the Mosaic Investors Fund (888-670-3600) since 1996; co-portfolio manager since 1991. Ask him who he thinks his fund is ideally suited for and he'll say, "We're not going to be an aggressive growth fund. So if someone is looking for the portfolio that has piazzas, that's not going to be us. If they are looking for stability and safety, that's more where we will fit in.

The Mosaic Investors Fund has gone through some changes since was first hit the market in 1978. Prior to Sekelsky becoming lead portfolio manager, it was managed as more of an asset allocation fund and as such sometimes large percentages of its assets were in cash. Today, the fund is fully invested as a growth at reasonable risk fund.

Stocks that make it into the fund's portfolio have to pass a number of screens and are assessed a Confidence Rating by its management team.Here's more about the Mosaic Investors Fund and how their Confidence Rating comes into play when selecting---and selling---stocks for the fund's portfolio:

Q: Help me to understand your stock evaluation process including GRR, growth at reasonable risk, and the confidence rating.

Sekelsky: We're not an aggressive growth at any price manager but we are a growth at reasonable risk. So, we're looking for companies that are growing at above market levels but trading at below market valuations.

Then we further constrain that by assigning something we call our Confidence Rating to each security (ratings range from 1 to 5, 5 being the highest). The rating has to do with how confident we are as analysts that the thesis, or reason for buying a stock, will come true. The more confident we are, the larger position we'll take in that stock.

Q: How many stocks are in the fund and what sectors of the market are you invested in?

Sekelsky: It's a fairly concentrated portfolio and we usually hold around 25 to 30 stocks. Right now we have 27.

We operate only in sectors of the market in which companies can generate consistent reasonable predictable growth. What that means is we avoid cyclicals, energies, utilities, basic materials, cap goods--- those types of industries where the earnings are more cyclical in nature and tend to ebb and flow with the economy

. We're more interested in owning companies like a Johnson & Johnson or a Safeway. Companies that have good solid earnings whether the economy is growing rapidly or slowly. That incorporates a lot of different stocks like consumer financial health care, technology and telecommunications stocks.

Q: Can you give me a specific example of how your Confidence Rating plays into things?

Sekelsky: BMC Software is a stock that we held through the second half of last year. It's an enterprise software company meaning that they provide software primarily for main frames, which is viewed by some as a dying breed.

The stock had fallen into the mid-$40's range and because of the valuation work we had done and the risk we had looked at, we thought the stock was worth something more in the $70's. However, we assigned it a modest Confidence Rating of 3.

We ended up selling BMC Software in the high $70s in the late fall primarily because our target price was close to $80. So, when it got to the mid-$70s, we thought that was enough.

For 3-rated companies, if they get close to our target prices we're just going to sell them because the risk in them has grown significantly. In other words, the closer you get to the target price, you have little upside (risk) and lots of downside (risk). Now that stock is trading in the high teens---and it didn't split.

Q: How about one that didn't do so well.

Sekelsky: Computer Associates was another story we thought was misunderstood by the market. It was a cheap stock, if you will, and we don't buy stocks just because they are cheap. They have to have a catalyst that's going to drive them because cheap stocks stay cheap if there is nothing to move them. And if they are poorer companies, they've get even cheaper many times. So cheap alone is not the solution.

The good news was be bought the stock in the high $50s in April and ended up selling it in the high $40s about one month later. So we took a hit on it.

Again this was a 3-rated stock which means we keep it on kind of a short leash. We learned that there might be problems with the company; sold it; shortly after the sale the company did announce their earnings were going to be below expectation; and the stock got cut in half.