Better Know a Fund Manager

Welcome, Fools, to part six of our several-thousand-part series, "Better Know a Fund Manager," which is loosely, but not too loosely, based on Stephen Colbert's "Better Know a District" from The Colbert Report.

Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?

Stratton Multi-Cap (STRGX)

Expense ratio

1.08%

Assets

$148 million

1-year return

19.06%

5-year return

13.23%

10-year return

12.90%

Sources: Stratton management, Morningstar

Meet James Stratton
The fightin' team at Stratton Multi-Cap is led by the firm's namesake, James Stratton, who founded Stratton Management in 1972 in rural Pennsylvania. He remains one of the longest-tenured fund managers in the land and was recently named to BusinessWeek's list of the best fund managers.

No wonder. His performance at the helm brings forth visions of another Pennsylvanian: John Neff. The former manager of Vanguard Windsor (FUND: VWNDX  ) beat the S&P 500 by an average of more than 3 percentage points annually over 31 years at the helm. Stratton is in his 34th year on the job and, through April, has beaten the S&P by a little more than 1 percentage point per year.

Of course, it's his more recent success that caught the attention of BusinessWeek. Through March, Stratton Multi-Cap has risen an average of more than 31% annually over the past three years. What's his secret? Try everything. The aptly named Stratton Multi-Cap fund has no market-cap restrictions.

How he invests
But the fund wasn't always aptly named. When Stratton opened the fund in September 1972, on the eve of one of the most vicious bear markets ever to savage American investors, he chose to name it Stratton Growth. But that had nothing do with strategy. Instead, Stratton says, "We just wanted the money in the fund to grow."

Well, it has. And that's thanks to staying the course; his disciplined value investing approach favors companies with low price-to-earnings ratios, excess cash flow, and above-average dividend yields. Stratton also seeks dividend growth, writing that firms that boost their payouts over time "tend to offer the potential of above-average returns."

But even that may not be the secret. Stratton sticks it to Wall Street's stockinistas by maintaining a ruthless sell discipline, telling Investment Advisor magazine in January that he prunes what he calls "the weak sisters" in the fund's portfolio every quarter. Through March, that included Briggs & Stratton (NYSE: BGG  ) and YRC Worldwide (Nasdaq: YRCW  ) . You just know they had it coming, too.

Is this fund for you?
So, should you invest with Stratton? There are plenty of reasons to consider it. Top of the list may be longevity. It doesn't often happen that you get to invest with an experienced, proven manager on the cheap, yet Stratton Multi-Cap offers just such an opportunity.

What's more, the fund's flexibility allows Stratton to pick stocks of all sizes for the portfolio. That's why oil services firm Valero Energy (NYSE: VLO  ) , a $40 billion enterprise, and circuit board maker Jabil Circuit (NYSE: JBL  ) , a $5 billion company, are both top 10 holdings. Yet that same flexibility could prove to be a weakness. Stratton holds only 40 stocks in the portfolio, including highly volatile issues such as Seagate Technology (NYSE: STX  ) . Bring a seat belt if you choose to invest.

And that's this week's profile. See you back here next Thursday, fund nation. Good night.

For mutual fund ideas of all shapes and sizes, click here to try Motley Fool Champion Funds free for 30 days. There is no obligation to subscribe.

Fool contributorTim Beyersis a regular viewer of The Colbert Report. (Stay the course.) Tim owns shares of Seagate. You can find out what else is in Tim's portfolio by checking his Foolprofile. The Motley Fool has an ironcladdisclosure policy.


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