Portfolio Manager Perspectives

Jeff Benjamin

Aston’s Zerhusen: Ignore mid-caps at your peril

No longer ‘silly-low priced’ after last year’s run-up, but space still has plenty of winners

Jan 29, 2010 @ 12:54 pm

By Jeff Benjamin

Investors are ignoring mid-cap stocks at their own peril, according to Thyra Zerhusen, manager of the $1.3 billion Aston/Optimum Mid Cap Fund (CHTTX) from Aston Asset Management.

“Mid-cap stocks, in general, have done better than large and small cap, and it’s silly the way they are getting ignored,” she said.

The fund’s portfolio of just 40 stocks benefited from the market’s downturn a year ago when Ms. Zerhusen was able to load up on companies that had seen their share prices beaten down.

“Before and right at the market’s bottom, we were putting more money into stocks that we thought were silly-low priced, and totally, completely oversold,” she said.

That kind of aggressive approach helped propel the fund to a 66% gain last year, which compared to a 26% gain by the S&P 500.

To keep the momentum going, Ms. Zerhusen said the key will be bottom-up fundamental research that pays particular attention to the current earnings season.

“You have to be very careful and look closely at how the companies are reporting their earnings,” she said. “We’re still seeing some companies report better than expected earnings, but you have to pay close attention.”

Ms. Zerhusen, who started managing the fund in 1999 when it had just $20 million, has concentrated on a niche in the mid-cap space by identifying those companies that are growing and operating like much larger businesses.

For examples, about half of the companies in the portfolio are getting at least 50% of their revenues from outside the United States.

Among the stocks she holds is H&R Block Inc. (HRB).

At less than $22 per share, Ms. Zerhusen said the stock is still “inefficiently priced,” considering the pace at which the company continues to gain market share.

Another stock that hit her radar screen during the market downturn is The McGraw-Hill Companies Inc. (MHP).

Despite its association with struggling of media and book publishing outlets, just 2% of the company’s revenue comes from advertising sales, and 70% of operating income is based on financial data and information, she said.

To Ms. Zerhusen, a mid-cap company is one with a market capitalization of between $2 billion and $12 billion.

The fund’s 23% annual turnover rate implies a strong commitment to her investment picks.

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives .


What do you think?

View comments

Most watched


Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.


Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.

Latest news & opinion

The growth of factor-based investing

Advisers are making decisions about clients' portfolios by using the same characteristics that govern factor-based ETFs.

Finra makes its list to target hundreds of rogue individuals

The regulator sees patterns in the behavior and disclosures of high-risk brokers.

LTC insurer offering co-pays to blunt soaring premium increases

John Hancock policyholders would get a discount on their premium in return for agreeing to pay a bigger portion of their claims in the future.

Goldman Sachs acquires United Capital

After a payday of $75 million or more, CEO Joe Duran plans to join Goldman in a senior position.

Private equity loves IBDs, but will that last?

Three big acquisitions in less than a year signals renewed life in the formerly beleaguered industry.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print