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  • Home>Research & Insights>Undiscovered Managers>Consistency and Continuity

    Consistency and Continuity

    Tributary Small Company Fund has a formula for the long run.

    Laura Lallos, 10/17/2017

    In every issue, Undiscovered Manager profiles a manager on the Morningstar Prospects list compiled by Morningstar Research Services’ manager research group. What stands out first about Tributary Small Company Fund FOSCX is its end results. Screen for a small-cap core fund with strong relative performance, and this one comes up near the top time and again. But how it got there doesn’t make for a dramatic story. There’s no maverick manager making heroic bets against a benchmark here—just careful work from an experienced team in Omaha, Neb.

    That’s why the fund has a good chance of continued success.

    Mark Wynegar, who has run the fund since joining Tributary Capital Management’s predecessor in 1999, and Mike Johnson, who joined in 2005 and was named comanager in 2007, are in it for the long haul. Their goal is above-average long-term performance with below-average risk. The fund’s 4-star Morningstar Rating as of August indicates their success relative to other funds in the small-cap blend Morningstar Category.

    The strategy has earned a place in Morningstar Prospects, a watchlist of up-and-coming and underfollowed funds maintained by Morningstar Research Services. Senior analyst Greg Carlson, who oversees the list, says, “Tributary Small Company was added to Prospects because it features a long-tenured management team plying a proven approach: It looks for good businesses trading at a fair price.”

    A Careful Balance
    The process behind the performance is a measured one. Johnson says that while they believe value stocks are likely to outperform with less risk, “we are not deep value managers, because that increases the likelihood of steering yourself into a value trap.”

    They look for quality companies that can enhance shareholder value over time and provide downside protection in poor economic and market environments. They seek to buy at discounts to intrinsic value to generate excess return and provide a margin of safety. The result is a portfolio of 60 to 70 stocks bought with the expectation of a three- to five-year holding period.

    “We are active managers,” Wynegar says, “and want all our picks to contribute to performance, but we want to manage company- specific risk.” With this in mind, individual position sizes are meaningful but never outsized. On the low end, stakes are generally above 1%. On the top, while positions can go up to 5%, they usually remain under 3%.

    “We feel that our primary skill set is stock selection, so we try to isolate market risk,” Wynegar says, “and we don’t have sector timing skills, so we stay fairly similar to the Russell 2000 in terms of sector allocation.” The managers also generally keep cash under 5% of assets.

    Laura Lallos is a former Morningstar analyst and editor, and a frequent contributor to Morningstar Advisor magazine.