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| FUND FACTS |
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 |
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Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
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Industry
Diversification
(9/30/01) |
Fund |
S&P
500 |
|
Industry
Diversification
(9/30/01) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
Total assets
(billions) |
$1.0 |
-- |
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10 Largest Holdings
(12/31/01) |
% Assets |
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Total assets
(billions) |
$1.0 |
Total assets
(billions) |
$1.0 |
Total assets
(billions) |
$1.0 |
Total assets
(billions) |
$1.0 |
Total assets
(billions) |
$1.0 |
Total assets
(billions) |
$1.0 |
Total assets
(billions) |
$1.0 |
Total assets
(billions) |
$1.0 |
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Eric T. McKissack
Manager since December 1989
BS, M.I.T.; MBA, U. of California-Berkeley |
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Is This Fund For You?
FMI Focus is an expensive winner. Since opening in December 1996, the fund has climbed 25 percent annually while its average small-cap growth rival has gained just 4 percent. But Focus' expense ratio of 1.5 percent and annual portfolio turnover of more than 200 percent should not be ignored. The expense ratio is now a tad lower than the category average, but it has averaged an excessive 2 percent since inception. What's more, the furious trading style employed by managers Rick Lane and Glenn Primack can rack up egregious trading costs, particularly among the lightly traded small fry that they buy and sell.
Still, the managers say they're less concerned about costs than about adding value, a logical stance that sounds even better when you consider their record. FMI Focus has finished in the top half of its category in every calendar year since inception. Plus, precisely because of the managers' deft moves between aggressive and defensive areas, the fund has thrived during the bear market. Even this year it's leading two-thirds of its peers despite its 21 percent loss.
Portfolio Strategy
Both Lane and Primack are former Wall Street analysts who enjoy finding likely takeover candidates, typically undervalued companies. Lane, the lead manager since the fund opened, says he and Primack look for firms selling at a 25 percent discount to their private market value. The managers measure a company's private market value in part by analyzing the prices at which comparable companies are taken over. The companies they buy must also have a strong position in their respective industries and operate in sectors that are in the first half of their business cycle.
The managers will sell when a stock approaches its private market value. But much of their turnover results from buying and selling parts of core positions. While all that maneuvering has made this fund less tax-efficient than most of its peers, its after-tax returns still rank in the top 5 percent of its category over three and five years. Returns have been that good.
Outlook
The managers are awash in cash right now, which might raise some concern that the fund will lag if the market rallies. Cash accounts for nearly one-fifth of the $588 million fund, twice the typical level. Why so much? Assets have doubled in less than two years and the managers think holding some dry powder makes sense until the market calms down. (They've also put some new money into a couple of exchange-traded funds until they can find some more good buys.)
The market's volatility, however, would seem to suit their opportunistic style. They rode the tech and telecom bubble to a 54 percent gain in 1999 but then wisely slashed their tech exposure from one-half to one-quarter of assets in 2000. (It's still their biggest sector play.) Some of that spare dough went into financials and manufacturers. As a result, the fund gained 23 percent in 2000 and its average valuation ratios fell well below those of its peers.
In the first half of 2002, the managers trimmed some cyclical stocks like toolmaker Kennametal and manufacturer Rockwell Automation for profits of 87 percent and 80 percent, respectively. But then they scooped them up again in July's swoon. Meanwhile, they have eased back into techs like small-business software maker J.D. Edwards, a stock they started buying late last year at an average price of $13. Lane believes it'll be a long-term winner. The firm dominates its niche and has a new management team. Plus, "we're nowhere near the peak of tech's cycle," Lane laughs.
One big mistake was buying cable-TV provider Adelphia Communications, a longtime top holding that went bankrupt in June. Yet, FMI Focus' alert managers avoided a total washout: They sold last spring when Adelphia was still at $12.
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Company Research: AOL Time Warner