Fund Favors Easy-To-Track Holdings

It has taken an approach in search of companies that are not only in good condition, but that also present a set of easily understandable drivers of growth.

Co-managed by Ken Salmon and Patrick Gundlach, the fund (NASDAQ: - ) looks for companies with financial and operational success that can be tracked relatively easily over time. The fund primarily eyes companies that wield market caps in the range of $2 billion to $25 billion.

Salmon, who has been with M&I Investment Management since 2000, said the team would "look for improvement in financials and make sure that we are able to gain an understanding as to why it is occurring, what the catalysts are behind the improvement, and that we are comfortable that it is going to continue."

The results that this process has produced in 2007 have been remarkable. With $241 million in total assets, the fund was up 25.72% this year going into Tuesday vs. 17.61% for its mid-cap growth peers tracked by Morningstar and 7.53% for the S&P 500. For the past three years, Mid-Cap Growth has cranked out an average annual return of 15.88% vs. 14.65% for its peers and 10.84% for the S&P 500.

The fund holds between 90 and 100 stocks. A typical position accounts for no less than 0.5% of net assets, but no more than 2%. Relative to the S&P 500, the fund is overweight in the software, business service and telecom sectors.

But these weightings are a result of stock selection, not a concerted effort to flood a zone. "We build our portfolio from the bottom up by focusing on companies one at a time. We tend not to make macro calls."

Salmon and Gundlach use a similar approach with their Marshall Small-Cap Growth (NASDAQ: - ), up 24.90% for the year.

Top Holdings

Millicom International Cellular SA (NasdaqGS: - ) and VimpelCom (NYSE: - ) are two of Mid-Cap Growth's top holdings. Both are plays on the expansion of cell phone service in undersaturated markets.

Millicom provides services to consumers in Central America, South America, Asia and Africa. It's up 82% this year at about 112.

Vimpel is the No. 2 carrier in Russia behind Mobile TeleSystems (NYSE: - ). Vimpel's stock price has doubled this year to about 32.

"These companies are seeing large subscriber growth," Gundlach said.

Cutthroat competition similar to a more mature market such as the U.S. is not a major concern at this point either.

"There is plenty of room for these companies and their competitors to both experience strong growth given the level of subscriber demand," Gundlach said.

Nuance Communications (NasdaqGS: - ), a recent top buy, is emerging as a dominant player in the speech technology field. It's tops in Overall Rank and Fundamental Rank on Investors.com's Stock Checkup.

Its stock price has doubled to about 22 this year. In August, Nuance announced the launch of a one-click mobile search and messaging service powered by speech technology, which is now available for BlackBerry smart phones.

"We were attracted to the company because it is positioned in an area of strong growth," Gundlach said. "Nuance is also supplementing its growth with acquisitions to put it in a dominant market position."

Sterlite Industries India (NYSE: - ) is one of the fund's recent sells. Salmon and Gundlach were initially attracted to the company due to its high growth potential in the production of copper in India.

Under A Veil?

But going back to their principle of investing in companies that are in areas of easily understandable growth, Sterlite did not prove to be a good fit, despite its fundamental and stock-price performance.

"We were a little bit disappointed in the way the company communicated with shareholders," Gundlach said. "The quality and timeliness of shareholder communications is central to our investment process."