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A Reliable--and Recently Reopened--Mid-Cap Fund

Gold-rated FMI Common Stock's valuation-centric process has rewarded patient investors.

Gretchen Rupp: FMI Common Stock is a mid-cap blend fund that's recently reopened to new investors. Pat English has managed this for nearly 20 years. He works alongside an experienced team of seven additional analysts, each of whom is also a named manager on the strategy. The team follows a valuation-centric process that shines in rough markets, making it a reliable choice for risk-averse investors.

The managers choose high-quality businesses that have steady revenues and strong returns on invested capital. They focus on companies that can grow profits, not just earnings, and their typical stock will have lower than average debt levels.

The team won't overpay for quality. Analysts tend to focus on a stock's price/sales ratio because they think a company's earnings can be easily manipulated. As of the end of 2016, the fund's average price/sales ratio was about 30% lower than its peers'. But this value-centric approach means new opportunities can be scarce after an extended rally, and the fund's cash stake grew to about 17% as December 2016.

The fund is concentrated; managers typically hold between 40 and 50 stocks. And turnover is low, about 25% in the last several years, which means the managers typically hold a stock for about four years.

Over a full market cycle, patient investors have been rewarded. Its 9.8% annualized gain during Pat English's tenure beats the Russell 2000's 7.3% gain. The fund is a standout during market pullbacks, including the 2008 financial crisis, but will often fall behind when markets surge ahead. The fund earns a Morningstar Analyst Rating of Gold.

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