Our Investment
Process

Andrew Adams, Chief Investment Officer
Straightforward, Disciplined

Long-term. Regional Emphasis. Invest in Companies of All Sizes.

Our strong, decades-long success is the result of a straightforward process: We are long-term investors with a regional emphasis, investing in companies of all sizes across all sectors. We have an unwavering conviction in:
  • Our highly collaborative, proprietary investment process
  • Investing in companies, not markets
  • Investing in companies with historically strong returns on invested capital, consistent above-average growth and durable competitive advantages

Our Investment Philosophy

We believe the best way to make money for our clients is to consistently utilize a disciplined long-term investment approach. We focus on companies with consistent, above-average growth, strong returns on invested capital and durable competitive advantages.

Long-term Investors

  • Annual turnover typically less than 10%
  • Low turnover approach allows for fewer, better thought-out investment decisions
  • Following companies for years allows for broad understanding of business strategy, competitive environment and end market business cycle impacts
  • Focus on a less efficient area of the market to potentially benefit investors who can take a long-term approach, unlike many active managers and hedge fund managers who focus on short-term catalysts 
  • Record of outperformance over full market cycles, helped by downside mitigation in difficult markets

FULL ECONOMIC CYCLE PERFORMANCE CHARTS

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Regional Emphasis

Proximity Builds Conviction

  • Regional emphasis provides easy opportunities to meet regularly with management teams and build conviction in these companies
  • 150 visits annually with company management
  • Facility tours and product demonstrations build a core knowledge base
  • Attempt to build relationships with company management, employees, customers and vendors 

A Landscape of Rich Opportunity

  • Invest where we believe the best opportunities are
  • Great pool of companies to choose from in Minnesota and the Upper Midwest – 58 Fortune 500 companies and 280 public companies with a market cap of over $100 million (as of 12/31/2023)

Beyond the Region

  • Investments made outside the region for sector diversification and exceptional opportunities
  • Provide international exposure by investing in domestic companies with strong international strategies
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Why We Invest In Minnesota and the Upper Midwest (WI, IL, IA, SD, ND)

We believe there are significant benefits to proximity.

Invest in Companies of All Sizes

  • Buy companies with strong franchises that have the potential to earn above-average returns, regardless of size or sector constraints
  • Buy at reasonable valuation levels, with the intent to hold for a long period of time
  • Not trying to forecast what the market will pay for a particular security over the short-term (less than one year)

Our Investment Process

As bottom-up investors, we focus on companies, not markets. Our goal is to create a portfolio of stocks with the potential to perform well over full market cycles. Members of our Investment Committee closely monitor approximately 150 companies with dynamic upside and downside price targets for each of them. The 15 most attractive stocks are selected for our Recommended List and reviewed at our bi-monthly investment meeting. New ideas are championed by "flag carriers" who present Durable Competitive Advantage (DCA) analyses to the team for consideration.

Responsible Investing

We invest in companies that strive to be good corporate citizens who are committed to sound environmental, social and governance (ESG) practices.

We believe for a company to have long-term success, it must act in a socially responsible manner.

A fundamental part of our assessment of each company is the quality and philosophy of its management team and board.

We are not activist investors, we are active investors, always basing our decisions on the best long-term interest of our shareholders and clients.
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UNDERSTANDING ENVIRONMENTAL, SOCIAL AND GOVERNANCE FACTORS AS ACTIVE, LONG-TERM INVESTORS

Equity Process

We follow the below equity process to identify, analyze and evaluate companies, while adhering to the discipline of reasonable price targets for our Multi-Cap & Balanced Strategies.

IDENTIFY
STRONG
COMPANIES

Preference given to a regional universe of 400 companies, 150 companies closely monitored with dynamic upside and downside price targets:

  • Focus on companies with consistent, long-term, above-average growth
  • Look for companies with strong returns on invested capital
  • Investments made outside the region for sector diversification and exceptional opportunities

DURABLE
COMPETITIVE
ADVANTAGES*

A flag carrier undertakes an in-depth analysis on each company looking at the following as interpreted by Mairs & Power:

  • Competition in the industry
  • Potential of new entrants into the industry
  • Power of suppliers
  • Power of customers
  • Threat of substitute products

Source: Porter’s Five Forces of Competitive Position Analysis

Porter’s Five Forces

In 1980, Michael E. Porter designed a business model to evaluate competition intensity, attractiveness, and profitability of an industry or market. He observed these five "forces" over a variety of industries, using them to explain how various industries are able to sustain different levels of profitability. He published his findings in his book, Competitive Strategy: Techniques for Analyzing Industries and Competitors.

The five forces are:

  1. Competition in the industry
  2. Potential of new entrants into the industry
  3. Power of suppliers
  4. Power of customers
  5. Threat of substitute products
Porter’s Five Forces

EVALUATE
MANAGEMENT

Independently evaluate company management:

  • Meet regularly with management teams, in-person, at conferences and at their office
  • Facility tours and product demos build a core knowledge base
  • Helps build conviction. We don’t worry about short term stock performance; we want to benefit from long term success
  • Over 150 visits annually

VALUATIONS

Once conviction in a company is determined, dynamic upside and downside price targets are set:

  • 15 most attractive companies are selected for our Recommended List
  • Reviewed at bi-monthly Investment Committee meeting
  • Eliminate positions when opportunities don’t materialize or management is unable to execute

Fixed-Income Process

The primary objective of Mairs & Power fixed income is to provide regular current income while lowering the portfolio’s overall level of risk.

INVESTMENT
APPROACH

  • Invest primarily in corporate bonds, municipal bonds, and treasury bonds
  • Most securities are bought and held to maturity, keeping in mind that the price paid is a key determinant of long-term returns
  • Incorporate tax efficiency through analysis of taxable versus tax-exempt bonds

IDENTIFY
STRONG
ISSUERS

  • Credit quality is prioritized through independent credit analysis
  • Invest primarily in investment grade securities
  • Analyze securities using a long-term horizon, seeking issuers with durable and stable characteristics
  • Select securities from a curated universe of credits which are continuously monitored
  • Regularly assess new opportunities 

PORTFOLIO
CONSTRUCTION

  • Independent credit quality assessment helps determine specific security selection
  • Proprietary model drives relative value security selection
  • Trading systems, combined with breadth and depth of market relationships, help obtain best execution
  • Each purchase is customized for individual portfolios
  • Tax aware security selection seeks to optimize risk-adjusted, after-tax returns

ONGOING
RISK
MANAGEMENT

  • Laddered maturities help mitigate against shifting market conditions
  • Diversify credit risk across names and sectors
  • Maintain appropriate level of liquidity as required for each portfolio
  • Quarterly credit risk and diversification monitoring
  • Exit positions, if necessary, based upon ongoing credit surveillance