Consistency. What a beautiful word for investors. Just ask those who have invested in Rick Aster’s Meridian Growth Fund, which has averaged a 14.2 percent annual return since he started the fund with his own cash in 1984. So what does this San Francisco-based fund manager have that others don’t?
‘Investors all have the same information,’ says Aster. ‘They know the ratios, numbers, valuation. You add it up and pull the trigger. Or you don’t. That’s when it comes down to experience, but experience can also be a detriment. We’ve been through so much that sometimes you’re tempted to pull away from situations. But I’m mostly comfortable with companies I think can grow and aren’t highly cyclical.’
The 44-stock portfolio is heavily tilted toward mid-caps (average market cap of $4.8 bn), where Aster says there’s more potential for growth and a greater abundance of market inefficiencies. The Meridian Growth Fund – the name is suggestive of earth lines being precisely calibrated – is dominated by financials, followed by IT, healthcare and retail stocks with an average holding of $45 mn.
Aster is a bottom-up investor who tends to buy stocks with a market cap in the $500 mn-$2 bn range, which he holds for at least three years. ‘We never try to time an investment,’ he explains. ‘It’s about getting to know a company well, understanding the business. We’re not interested in how business was last week – it’s about getting the investment right, not the information.’
Now 67, Aster continues to attend roadshows, as they provide an opportunity to meet companies he’s taken positions with. ‘Or to hear companies I don’t know well; it happens all the time,’ he notes. ‘One firm we recently bought was Global Payments. We heard it at a research conference and took a small position. When we’re more comfortable we’ll build on that.’
Keeping watch At any given time Aster has around 100-200 stocks he doesn’t own on his watchlist. ‘I can get all the information I need in 20 minutes,’ he asserts. ‘I download the 10K, visit the company website, listen to a presentation, devise some questions and call the firm.’
Lately Aster has been particularly interested in the healthcare sector. A good example of an Aster stock is Pennsylvania-based operator, Dentsply, in which he has a $60 mn position. ‘You’ve got an ageing population for a start; many more people are concerned about their teeth,’ he explains. ‘Dentsply’s into developing countries where people want better health and dental care, so there’s quite a bit of opportunity.’
And what would cause him to exit a position? Aster says by far the most important thing to watch for is if things change and the long-term outlook turns out to be different from expectations. ‘If that breaks down, I don’t care about valuation – I just don’t like the business,’ he says. ‘If it’s a bad quarter but I like the business, I will probably add to that position. But if the long-term fundamentals change, I’m pretty much done.’
Aster’s basic approach of not paying silly prices for stocks he doesn’t understand sounds distinctly Warren Buffett-esque, coupled with his bias toward well-managed unfashionable stalwarts that have good market share and solid purchasing clout. However, Aster says he spreads the net wider than Buffett. ‘I take more interest in smaller companies,’ he explains. ‘Also, although free cashflow is important, it’s not an absolute criterion. Free cashflow may be good but may also not be good. If you can invest cash in a high-growth company, you can realize that growth.’
And what’s the most useful piece of advice Aster’s picked up during his long career? His answer is short and blunt. ‘Sometimes you’re tempted by a stock, but you’ve got to pay attention to value,’ he states. ‘If you don’t, you’re going to wish you had.’
