The performance of Columbus-based Kirr Marbach & Co.’s mutual fund continues to impress, outpacing its Indiana peers last year by a wide margin.
Kirr Marbach Partners Value Fund is one of just three home-grown mutual funds operating in the state. The others are The Archer Funds and the Auer Growth Fund, both based in Indianapolis.
But judging from 2012 results, Kirr Marbach seems to have its investment selections down to a precise science.
The firm’s “mid-cap blend” fund through Dec. 14 posted a year-to-date return of 23.3 percent, easily besting the 15-percent return of the Standard & Poor’s 500.
Morningstar Inc. ranks the performance of Kirr Marbach’s fund second among 315 competitors this year. Even more impressive, the fund places first for its cumulative return (19 percent) during the past three years.
With performances like that, it’s no wonder the fund has received national recognition.
In April 2011, national financial newsletter Emerging Manager Monthly selected the fund as manager of the year in its category.
In 2010, Kirr Marbach’s fund grew twice as fast as the S&P 500 and other indexes, with returns of 36 percent. Its two-year returns for the period ended March 31, 2011, were 54 percent.
The numbers are a big improvement from 2008, when the fund declined nearly 45 percent.
“While 2008 wasn’t very pleasant, it did set up some good buying opportunities on names we couldn’t buy historically because the valuations were too high,” said Mark Foster, Kirr Marbach’s chief investment officer. “We’ve held onto those.”
Launched in 1998, Kirr Marbach’s mutual fund consists of 40 stocks of large, midsize and small companies.
Its portfolio of public companies ranges from household names eBay Inc. and Coach Inc. to the more obscure Atlas Air Worldwide Holdings Inc. and WABCO Holdings Inc.
Investing in stocks has been a tradition at Kirr Marbach since its founding in 1975.
“Some guys run balanced funds and blend-oriented funds,” Foster said. “Our thought is that stocks as a whole, barring 2008, have been a pretty good investment and have a high rate of return.”
The Archer Funds
The Archer Funds in Indianapolis operates three mutual funds—the Archer Balanced Fund, the Archer Stock Fund and the Archer Income Fund.
The Balanced Fund, the firm’s oldest, having been launched in 2006, is heavy on conservative investments such as utilities and health care companies. About 30 percent is composed of short-term bonds.
Through Dec. 14, it had posted a 6.1-percent return, a bit lower than Archer’s other two funds, and was ranked 95th out of 723 similar funds, according to Morningstar.
“We’ve kept that fund very conservative,” said John Rosebrough, a portfolio manager at The Archer Fund. “Timing-wise, we haven’t made the best call there. But for the long-term investor, we feel like that’s the prudent approach.”
Archer rolled out its Archer Stock and Archer Income funds in early 2011. Archer Stock, a multi-cap fund, last year posted a 9-percent return, good for 75th place out of 736 competitors. Archer Income, composed of investment-grade bonds, had a 7.1-percent return and was ranked 47th by Morningstar from 868 similar funds.
The Archer Stock Fund’s 9-percent return is underperforming the S&P 500, largely because small and midsize company stocks are not performing as well as the blue chips, Rosebrough said. It’s ranked 78th out of 600 similar funds.
“But nonetheless, we’ve had a positive year for shareholders, but still would like to do better,” he said.
Auer Growth Fund
Auer Growth Fund lags the other Indiana funds, with a return of 0.2 percent through Dec. 14, by far trailing the S&P 500’s 15-percent return in 2012. Even so, within the “mid-cap blend” category, Morningstar ranks the fund 100th out of 315 similar funds.
The Auer fund has had a rough go of it lately, posting an average three-year return of negative 1.8 percent.
One reason is that small-cap stocks, which are heavily represented in the Auer Growth Fund, are not doing well, said Robert Auer, the fund’s senior portfolio manager.
“These very stocks that we’re buying don’t pay dividends,” he said, “and investors want dividends at almost any cost.”
For instance, one of the fund’s stocks, the Hawaiian Holdings airline company, is trading at only roughly $6 per share and earned $1.47 per share in its last quarter, but does not pay a dividend, Auer said.
He’s sticking to his formula, though, that’s produced results in the past.
Auer, who was vice president of investments at Morgan Stanley from 1986 to August 2007, and his father, Bryan Auer, opened Auer Growth Fund in December 2007.
The fund applies a 12-step screening process to a universe of more than 9,000 companies, ranging from tiny firms to those with market values of more than $100 billion.
The Auers invest in firms with stock prices they think have potential to double within a year. They apply three criteria when selecting stocks: earnings per share need to be up 25 percent, sales need to be up 20 percent, and the price-to-earnings ratio must be less than 12.
Of the 7,500 stocks that trade in the United States, only 115 meet the criteria and are in the Auer Growth Fund.
Auer studies a company’s performance after every one of its quarters to determine which stocks it will buy for its fund.
“The spotlight right now is on slow-growing dividend stocks,” he said. “But we’re not discouraged. It eventually comes around.”•