This top-performing mid-value fund has gained 3% this year. Here's what stocks it bought lately

Published Wed, Sep 14 202212:55 AM EDT

The top-ranked mid-cap value fund has beat the broader market by staying true to its investment strategy, according to data from Morningstar. The Clarkston Partners Fund (CFSMX) has gained more than 3% year-to-date, outperforming the broader market and its investment category and index per Morningstar. It's ranked in the top quartile against the more than 400 other mid-cap value funds covered by Morningstar, which describes it as a fund with a "sound investment process and strong management team." It's been a difficult year to find any funds with positive performance as stocks and bonds are both in bear markets. The S & P 500 has shed about 17% in 2022. The Bloomberg Global Aggregate Index, a fixed income benchmark, also fell into a bear market. Strategy Clarkston Capital, the Rochester, Michigan-based firm that manages the Clarkston Partners Fund, invests in a small number of high-quality businesses and seeks to promote longevity and attractive economics across the portfolio, according to a quarterly report from the fund. "Our 'absolute value' framework is intended to enforce disciplined pricing decisions and downside mitigation regardless of valuation multiples and the relative performance of broader indices," the firm noted in the June report. "We believe this approach leads to idiosyncratic returns that often differentiate our portfolios from those of our peers and from the larger market." These are "returns that occur independently and purely as a function of a business's operations and capital allocations," according to the fund. Clarkston Partners Fund's outperformance this year is welcome. By the end of 2021, the fund had had a few years of being at the bottom of rankings for its investment group and underperforming its benchmark. "While these results met our absolute objectives internally, we never relish appearing weaker in strong markets," the firm said in the fund's quarterly report. "The first half of 2022, however, has reminded investors that strong markets do not last forever." In this year's choppy bear market, however, the fund has outperformed. Names like Post Holdings and Change Healthcare contributed to its second quarter gains. Clarkston Partners Fund's current portfolio is heavy in consumer defensive and financial services names, according to Morningstar. It also has low exposure to consumer cyclical and energy stocks, compared to other similar funds. It's also a top-heavy fund. "Of the strategy's assets, 60.8% are concentrated within the top 10 holdings, as opposed to the category's 16.2% average," Morningstar says in its analysis of the fund. "And in closing, in terms of portfolio turnover, this fund trades less frequently than the category's average, potentially limiting costs to investors." The fund is less expensive than its peers – it is priced within the second-cheapest fee quintile against other similar funds, Morningstar found. It has an adjusted expense ratio of 0.85%. What it's picked up lately The fund hasn't bought many new stocks in the last few months but has added to positions of stocks it already owns. This year, it's pared back on holdings it considers fully valued and has used proceeds to buy more stocks trading at attractive prices. For example, the firm trimmed its position in media company Nielsen Holdings by roughly 57%. Shares are up about 35% in 2022. The fund has also picked up more shares of stocks trading at a discount such as waste disposal company Stericycle , which is down 15% this year. This is a way to set up the fund for long-term growth. "Short-term price movements matter little to us beyond the opportunities they provide to buy and sell shares," the fund's quarterly commentary noted. "Our goal is to compound wealth over the long term, and we continue to believe that the best method to achieve this goal is through consistent application of our Quality Value investment approach."