Things at the Nicholas Fund in Milwaukee haven't changed as much as you might expect in its 44 years.
Albert "Ab" Nicholas is still running the show, just as he has since it opened in 1969. He's still hunting for attractively priced stocks that his namesake fund can hold onto for years.
And the minimum initial investment hasn't changed: a Main Street friendly 500 bucks.
Nicholas, 82, is happy to talk about the fund's success. It's outperformed more than 90% of its peers this year, and over one-year, three-year and five-year spans.
If you invested $10,000 in the fund when it opened, it would be worth $935,000 today.
A multi-cap growth fund, it has about $1.975 billion of investors' money under management. It's a no-load fund with a modest 0.75% expense ratio.
Some of its top holdings are specialty retailers Walgreen Co., O'Reilly Automotive Inc. and Signet Jewelers Ltd., which operates Kay and Jared stores in Southern California. The idea is to find good companies and hold onto them until they're no longer a bargain. Patience, Nicholas said, means profit.
"I always tell the guys working here that you can't make double or triple or quadruple your money unless you hold your stock," he said.
Nicholas' fund has benefited from a big stake in mid-caps, which have led the resurgence of the stock market over the past four years. The fund holds about 41% in large companies, 48% in mid-caps and 11% in small-caps.
Although Nicholas' son, David, is co-manager of the fund, dad still plays an active role. And he has no plans to retire.
"I realize I'm getting to an age where I need to think about that a little bit more," he said. "I don't have any plans to retire. As long as I'm healthy, I'll be here."
To what do you attribute the fund's success?
"We're stock pickers. We spend all our time analyzing companies and trying to figure out what they're worth and we've hit some very good stocks. We just try to find good stocks and be patient. I think our turnover rate is 25% to 30%. It's old-fashioned Midwestern investing."
How many companies are in the fund?
"The fund has about 40 names. I like to keep it to 40 or less. If we get some good stocks, it's meaningful to our performance."
What are some of your favorite stocks in the fund?
"We loaded up on Walgreens before it moved higher in the last month or two and we still like that a lot. They made a good deal with [European drug store chain] Allied Boots in Great Britain. They turned around their pharmacy business. Yet it's still not expensive. The baby boomers are starting to get old and that's going to be a boon to Walgreens." Walgreen Co. shares are up about 27% this year.
What keeps you inspired?
"What I love is the competition, outperforming our peers and helping our shareholders in the process. I especially like to beat those guys out in New York. They tend to think they have all the answers out there, but frankly they don't have as many as we do. It's like Warren Buffett once said, 'We have a telephone and we have a newspaper, so we know what's going on.' And we have the Internet too."
What do you look for in companies you buy?
"We're very conscious of low [price-to-earnings] ratios. We like them from 10 to 15 times earnings. We're very skeptical of rapid growers. We don't want to overpay. Historically, we have tended to buy companies with steadily improving earnings "
You have never raised the initial minimum investment of $500. Why is that?
"We started this fund as a no-load mutual fund in 1969 with the idea we could help the small investor achieve better results than he could do for himself. We wanted to serve the small investor so we kept it at $500 and it has not changed."
How has your fund survived for more than half a century?
"We've had our good periods and some bad periods. We made some mistakes in the early 2000s and we got it back on track. I'm very pleased with that."
Nearly half of your fund is in mid-caps. Was this intentional?
"We've always gone with the proposition that smaller companies can grow faster than larger companies. It's easier to go from $500 million in sales to $1 billion than it is to go from $30 billion to $60 billion. So we tend to favor the smaller names. We're not opposed to big names, but in general we prefer small and mid caps."
The mid-caps have outperformed large and small companies in the past year, and over 5-year, 10-year and 20-year spans. Do you expect this trend to continue?
"I just think those things go on from time to time. There's no rationale I can see in that. We don't go on generalities; we go stock by stock. We find things that make sense in today's market. The size doesn't have much bearing on us, it's the valuation that we're concerned about."
Your fund has 18% of its holdings in retail, far more than any other sector. Why is that?