Morningstar Advisor - August/September 2010 - 50

Undiscovered Managers

Thyra Zerhusen

company’s true potential. If she can buy such stocks when they’re depressed even further by short-term market conditions, so much the better. A good example of how Zerhusen has applied this lesson is her attitude toward media stocks, upon which she cut her teeth as an analyst in those early days. For many years she didn’t find media stocks particularly attractive, but lately she has been seeing a lot of opportunities in the sector. The stocks have been cheap for several years because of a perception that traditional media companies are dinosaurs; most of them got hammered in the 2008 bear market. Zerhusen recognizes that there’s a realignment going on as more content moves from print to online, but she argues that media firms such as New York Times NYT and Gannett GCI (both top-10 holdings in her fund) still have advantages that will enable them to gain market share. She also likes their cash flow and thinks that the market is underestimating such features as Gannett’s stake in CareerBuilder.com. Both New York Times and Gannett bounced back strongly in 2009 from their bear-market lows, helping Aston/Optimum Mid Cap to top-decile gains for the year. Another case in which Zerhusen took advantage of a discrepancy between perception and reality was her Monsanto investment. She bought the stock during the previous bear market, in 2002, when it was down in the dumps because of fears that its fledgling genetically modified seed business would create “Frankenfoods” that consumers wouldn’t buy. But Zerhusen liked the company’s strong cash flows and believed that the market was being much too pessimistic. When she sold the stock in 2005, it had more than doubled in price because of tremendous growth and acceptance of genetically modified seeds.
Moving Into Mid-Caps

Aston/Optimum Mid Cap CHTTX
$14K

covering all types of stocks rather than just one or two industries. The broader experience gained in that job served her well, so that when Sears outsourced management of its pension fund in 1993, Zerhusen was hired by the Burridge Group to manage mid-cap growth portfolios for institutional clients. She put together very good results there, but she began looking for new opportunities after a few years. In 1999, she was hired to turn around the Alleghany/Chicago Trust Talon Fund, a struggling mid-cap mutual fund subadvised by Talon Asset Management. Over the next four years, the fund achieved some of the best returns in the mid-cap blend category, and its asset base grew to $200 million from $20 million. When she moved to Optimum Asset Management in 2003, the fund’s board unanimously approved a change in subadvisor so that she could continue to manage the fund. Today, Aston/Optimum Mid Cap (as it is now known) has more than $1.5 billion in assets. Zerhusen is aided by Mary Pierson and Marie Lorden, who were named comanagers in March 2009, several years after Zerhusen hired them as analysts. She still finds a lot to like about mid-cap stocks, and it’s no coincidence that they’ve been her focus as a portfolio manager. They’re typically niche firms that are more stable than small caps but not as widely followed as large caps, making it easier to find good companies that have been overlooked or misunderstood. Mid-caps also tend to be frequent takeover targets. Some two dozen of the fund’s holdings—”more than my fair share,” Zerhusen says—have been bought out over the past decade, often at a significant premium to their market price. That’s not to say that Zerhusen buys stocks expecting them to be taken over, but many of the features that she finds attractive also are attractive to strategic buyers. Eleven of the fund’s holdings were taken over at the height of the merger boom in 2006 and 2007, ranging from Dow

11

S&P 500 TR

8

05

06

07

08

09

10

Category 5 Mid-Cap Blend Morningstar Rating

Expense Ratio (%) 1.20 5-Yr Anl Total Rtn (%) 5.69 5-Yr Anl TR % Rank Cat 3

QQQQ
Minimum Investment $2,500 Data through June 30, 2010

of Chicago and worked as a transportation analyst while taking grad-school classes at night. “I didn’t know what I wanted to do, so I took classes in computers, engineering, Jan-05 Jan-06 Jan-07 Jan-09 Jan-08 Jan-10 city planning, all kinds of things,” she says. EconomicsJun-06Dec-06to be Feb-08Jul-08 Feb-09Jul-09 sheJul-10 Feb-05Aug-05Feb-06Aug-06Feb-07Aug-07herJun-08Dec-08Jun-09Dec-09Jun-10 Mar-05Sep-05Mar-06Sep-06Mar-07Sep-07Mar-08Sep-08Mar-09and Feb-10 Apr-05Oct-05Apr-06Oct-06Apr-07Oct-07Apr-08Oct-08Apr-09Oct-09Apr-10 May-05Nov-05May-06Nov-06May-07Nov-07May-08Nov-08May-09Nov-09May-10 Jun-05Dec-05 proved Jun-07Dec-07 strength, Aug-09 Mar-10 Jul-05 Jul-06 Jul-07 Aug-08 Sep-09 got a master’s degree in the subject in 1976. A tip from a classmate led Zerhusen to Harris Bank, where she got a job as an equity analyst covering publishing stocks. It was there that she learned the essentials of analyzing companies and industries, and that training remains the foundation of her Buffett-style approach to investing more than 30 years later. She learned how to analyze financial statements and identify companies with strong fundamentals. Even more important, she learned the importance of valuation in finding good long-term investments. Throughout her career, she has looked for stocks where there’s a mismatch between perception and reality— where the market price doesn’t reflect a

Zerhusen’s time at Harris Bank gave her an excellent grounding in analyzing stocks and industries. After Harris, she worked as an analyst for the Sears Roebuck pension fund,

50 Morningstar Advisor August/September 2010



Morningstar Advisor - August/September 2010

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2010

Morningstar Advisor - August/September 2010
Contents
New on MorningstarAdvisor.com
Contributors
Letter From the Editor
What Aspects of Health-Care Reform Will Most Affect Your Clients?
Bonds, Chicago Style
Investment Briefs
Which Risk Are You Managing?
Eye on the Prize
Advisors Can’t Rely on Fidelity Alone
Health Care Gets Back to Business
An Opportune Time to Bet the Pharm
Reform’s Impact on Other Health-Care Industries
Top Takeover Targets in Biotech
After Reform, Narrow-Moat Firms Have Strong Prospects in Diagnostics
Health-Care Investing Alive and Well
Quest for Knowledge
Four Picks for the Present
How to Make Your Bond Portfolio Inflation-Resistant
Weeding Through the Energy Patch
Uncertainty and Value in Basic Materials
Stock Market Doom-Busters
Hunting Down European Debt-Dodgers
Mutual Fund Analyst Picks
50 Most Popular Equity ETFs
Undervalued Stocks With Wide Moats
VA Sales Slip a Bit in First Quarter
New at Morningstar
Star Wars, the Sequel
Morningstar Advisor - August/September 2010 - Morningstar Advisor - August/September 2010
Morningstar Advisor - August/September 2010 - Cover2
Morningstar Advisor - August/September 2010 - 1
Morningstar Advisor - August/September 2010 - 2
Morningstar Advisor - August/September 2010 - Contents
Morningstar Advisor - August/September 2010 - 4
Morningstar Advisor - August/September 2010 - 5
Morningstar Advisor - August/September 2010 - New on MorningstarAdvisor.com
Morningstar Advisor - August/September 2010 - 7
Morningstar Advisor - August/September 2010 - Contributors
Morningstar Advisor - August/September 2010 - Letter From the Editor
Morningstar Advisor - August/September 2010 - What Aspects of Health-Care Reform Will Most Affect Your Clients?
Morningstar Advisor - August/September 2010 - 11
Morningstar Advisor - August/September 2010 - Bonds, Chicago Style
Morningstar Advisor - August/September 2010 - 13
Morningstar Advisor - August/September 2010 - Investment Briefs
Morningstar Advisor - August/September 2010 - 15
Morningstar Advisor - August/September 2010 - Which Risk Are You Managing?
Morningstar Advisor - August/September 2010 - 17
Morningstar Advisor - August/September 2010 - 18
Morningstar Advisor - August/September 2010 - Eye on the Prize
Morningstar Advisor - August/September 2010 - 20
Morningstar Advisor - August/September 2010 - 21
Morningstar Advisor - August/September 2010 - Advisors Can’t Rely on Fidelity Alone
Morningstar Advisor - August/September 2010 - 23
Morningstar Advisor - August/September 2010 - 24
Morningstar Advisor - August/September 2010 - 25
Morningstar Advisor - August/September 2010 - 26
Morningstar Advisor - August/September 2010 - Health Care Gets Back to Business
Morningstar Advisor - August/September 2010 - An Opportune Time to Bet the Pharm
Morningstar Advisor - August/September 2010 - 29
Morningstar Advisor - August/September 2010 - Reform’s Impact on Other Health-Care Industries
Morningstar Advisor - August/September 2010 - 31
Morningstar Advisor - August/September 2010 - 32
Morningstar Advisor - August/September 2010 - Top Takeover Targets in Biotech
Morningstar Advisor - August/September 2010 - 34
Morningstar Advisor - August/September 2010 - 35
Morningstar Advisor - August/September 2010 - After Reform, Narrow-Moat Firms Have Strong Prospects in Diagnostics
Morningstar Advisor - August/September 2010 - 37
Morningstar Advisor - August/September 2010 - 38
Morningstar Advisor - August/September 2010 - 39
Morningstar Advisor - August/September 2010 - 40
Morningstar Advisor - August/September 2010 - Health-Care Investing Alive and Well
Morningstar Advisor - August/September 2010 - 42
Morningstar Advisor - August/September 2010 - 43
Morningstar Advisor - August/September 2010 - 44
Morningstar Advisor - August/September 2010 - 45
Morningstar Advisor - August/September 2010 - 46
Morningstar Advisor - August/September 2010 - 47
Morningstar Advisor - August/September 2010 - 48
Morningstar Advisor - August/September 2010 - Quest for Knowledge
Morningstar Advisor - August/September 2010 - 50
Morningstar Advisor - August/September 2010 - 51
Morningstar Advisor - August/September 2010 - Four Picks for the Present
Morningstar Advisor - August/September 2010 - 53
Morningstar Advisor - August/September 2010 - How to Make Your Bond Portfolio Inflation-Resistant
Morningstar Advisor - August/September 2010 - 55
Morningstar Advisor - August/September 2010 - 56
Morningstar Advisor - August/September 2010 - 57
Morningstar Advisor - August/September 2010 - Weeding Through the Energy Patch
Morningstar Advisor - August/September 2010 - 59
Morningstar Advisor - August/September 2010 - 60
Morningstar Advisor - August/September 2010 - Uncertainty and Value in Basic Materials
Morningstar Advisor - August/September 2010 - 62
Morningstar Advisor - August/September 2010 - 63
Morningstar Advisor - August/September 2010 - Stock Market Doom-Busters
Morningstar Advisor - August/September 2010 - 65
Morningstar Advisor - August/September 2010 - Hunting Down European Debt-Dodgers
Morningstar Advisor - August/September 2010 - 67
Morningstar Advisor - August/September 2010 - Mutual Fund Analyst Picks
Morningstar Advisor - August/September 2010 - 69
Morningstar Advisor - August/September 2010 - 70
Morningstar Advisor - August/September 2010 - 71
Morningstar Advisor - August/September 2010 - 50 Most Popular Equity ETFs
Morningstar Advisor - August/September 2010 - 73
Morningstar Advisor - August/September 2010 - Undervalued Stocks With Wide Moats
Morningstar Advisor - August/September 2010 - 75
Morningstar Advisor - August/September 2010 - VA Sales Slip a Bit in First Quarter
Morningstar Advisor - August/September 2010 - 77
Morningstar Advisor - August/September 2010 - 78
Morningstar Advisor - August/September 2010 - New at Morningstar
Morningstar Advisor - August/September 2010 - Star Wars, the Sequel
Morningstar Advisor - August/September 2010 - Cover3
Morningstar Advisor - August/September 2010 - Cover4
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