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Fund Spy

A Glimpse Behind the Curtain at FMI Large Cap

This Gold-rated fund knows how to execute.

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Pat English,  FMI Large Cap'(FMIHX) lead manager, is looking for stocks he says he could put in a lockbox for five years. FMI Large Cap's 28% turnover rate does suggest a three- to five-year average holding period, and the fund's oldest positions are approaching 10 years as part of the portfolio. This long time period requires that the companies English and his team of six analysts buy possess two impor­tant characteristics: a strong, predictable business and a cheap price. These criteria are doubly important for such a compact portfolio of 25 stocks, where each holding can have a meaningful impact on performance.

The fund's process has evolved over many years. In the mid-1980s as he was starting his career at Dodge and Cox, English spent more time thinking about book value, returns on equity, and price/book ratios--until write-offs swept the corporate-accounting landscape, making those figures less meaningful. Next, at FMI (he joined in 1986), English looked harder at price/earnings ratios, until the 1990s brought, as English says, "the bastardization of P/E ratios," thanks to the likes of Jack Welch and other CEOs intent on giving Wall Street what it wanted and keeping "cookie-jar reserves" to help them do so.

Bridget B. Hughes does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.