By Jon Kamp Of DOW JONES NEWSWIRES Managers of the Legg Mason ClearBridge Mid Cap Core Fund (SBMAX) hope investors are once again valuing mid-sized companies based on business fundamentals. Getting back to basics plays into the strategy of the $624.8 million fund, where co-managers Brian Angerame and Derek Deutsch hunt for companies that fly under the radar and have under-appreciated strength on their balance sheet, plus strong track records for putting money to work carefully. "Those characteristics fell out of favor when the market rallied" starting last year, and "the market wasn't appreciating cash flows and balance sheets," Angerame said, which made it hard for the fund to distinguish itself. But that trend has changed in recent months, he said. Time will tell if that shift helps the fund, which holds about 65 companies and garners three of a possible five stars from Morningstar. Over a three- or five-year period, the fund has outperformed both the Standard & Poor's 500 index and other funds in its peer group, but the waters have muddied more recently. So far this year, the fund is down about 3.3%, according to Morningstar, just ahead of the broader market but slightly worse than its peer group. The fund holds many stocks in information technology and financials, with those sectors accounting for more than a third of fund holdings. But managers generally hew to benchmark sector weightings in the S&P 400 MidCap index as a guide and don't make sector bets. Instead, they aim for a "bottom-up" approach that involves hunting for overlooked firms, Angerame said. A recent example is consumer-products company Jarden Corp. (JAH), which the fund picked up this year and made its top holding, according to end-of-July records. Jarden may have a little-known name, but it owns a stable of well-known consumer brands including Mr. Coffee, baseball glove-maker Rawlings and electric fan-maker Holmes. As of late Friday afternoon, the stock has tumbled about 12% this year, so it hasn't helped the Mid Cap Core fund so far, but managers are betting it will. This is "a great company nobody has heard of," which contributes to Wall Street aiming too low on earnings forecasts for the next two years, Angerame said. He likes the way Jarden has picked up assets as bigger companies shed them. "The stocks that do best, or have done best in the recent past, are run by people who are more willing to put that excess capital to work," he said. Another recent fund pickup is Crown Holdings Inc. (CCK), which makes soda cans and other containers and was the fund's fourth-largest holding on July 31. The stock was up about 9% on the year as of late Friday afternoon. Angerame sees stable growth ahead, even if it's not fast growth, helped by increasing drink sales in Asia. Amdocs Ltd. (DOX), which provides support software for telecommunications service providers, is another recent addition. Meantime, the fund recently sold shares of financial services software firm Fidelity National Information Service Inc. (FIS), which had been the top holding as recently as June. That company is in the midst of buying back stock. Overall, the fund aims for companies with a market capitalization between $1 billion and $15 billion, and will generally sell stocks when they exceed this mid-cap target. It sold Internet router company Juniper Networks Inc. (JNPR) when it approached this range, although that firm's market cap is currently below $15 billion. (Jon Kamp covers medical devices for Dow Jones Newswires. He can be reached at 617-654-6728 or by email at jon.kamp@dowjones.com) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.)
