Easy Growth

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The US economy is recovering slowly, and despite some areas of concern, the global economy continues to strengthen. Look to this fund to capitalize on improving economic and industry trends by picking up shares of profitable companies. 

Touchstone Mid Cap Growth (TEGAX) has produced steady returns over the years under a trio of managers, Susan I. Suvall, John A. Gibbons III and William Muggia.

The fund's management team takes a fundamental, bottom-up approach to investing that carefully scrutinizes all aspects of the fund's current and potential holdings. The team builds earnings estimates internally and each member spends roughly 20 to 30 percent of their time on the road visiting the individual companies in the portfolio.

"We like to get to know the management teams to better assess the state and direction of the firms," Muggia said.


Despite having a strict screening process, there's no specific calculated range in which a company's fundamentals must fall for consideration.

Management has recently found significant opportunities in emerging markets. The team increased the fund's positions in the technology, industrials, energy and materials sectors, which now account for Touchstone Mid Cap Growth's largest sector weightings.

"We have the flexibility to move into whatever industry presents the strongest growth potential," Muggia said. "These industries are where we expect the highest growth right now, whereas historically we looked to health care and consumer discretionary stocks."

Management favors the energy sector because of what Muggia calls "an undeniable lack of oil supply" on a global basis. While oil prices have hit record highs, producers have failed to raise production to a commensurate level.

The world's "easy energy" has already been exploited, requiring increasingly complex and expensive technologies to both find and drill for energy resources. Emerging-market economies will need massive amounts of resources of all stripes to fuel growth. All of this will only raise global demand for oil 

Oil services companies such as Weatherford International ( WFT ) are in the sweet spot to profit from these long-term trends. Future oil drilling will require more money to be allocated to servicing oil rigs. As pricing for these critical services increases, Weatherford and its peers will benefit greatly.

In the technology space, management seeks companies with an attractive risk-reward spread through a barbell strategy that encompasses both fast-growing companies and conservative names. Firms like Red Hat ( RHT ) or Akamai Technologies ( AKAM ) may not garner flashy headlines, but they're rapidly growing and increasing their market share.

More conservative growers such as Autodesk ( ADSK ) and Nice Systems ( NICE ) boast stable and dominant businesses, strong free cash flows and defensive market positions.

The team is also bullish on industrials. This space suffered massive capacity losses as firms reduced their workforces and closed plants to survive the 2008-09 meltdown. But the sector is now getting back on track.

"Our industrials are some of the most well-known distributors in the industry," Muggia said, noting that many of these industrials have significant exposure to high-growth emerging markets.

Management also believes that the materials sector provides exposure to the growth of food- and agriculture-related industries. One such company is Crown Holdings (CCK), a firm that packages consumer goods. Crown Holdings benefits from an expanding presence in Europe and the emerging markets. The stock represents a back-end play on a US economic recovery.

Touchstone Mid Cap Growth is well-positioned to benefit from a recovery in cyclical sectors that will improve in step with the broad US economy. The automotive industry is one such sector that may surprise investors as the economy finds its footing.

Muggia and his team have identified two non-traditional names that will benefit from the auto recovery: Solutia (SOA) and Lear Corp (NYSE: LER).

Solutia is a specialty chemical company that produces plastic films for car electronics. The firm is also the leading provider of rubber chemicals used to manufacturer vehicle tires. As consumers regain confidence and purchases of cars and auto parts rises, demand for Solutia's products will increase. Management also likes the firm's exposure to emerging markets, where auto sales remain robust.

Automotive supplier Lear Corp is gaining market share for key electronic components in new cars. The firm's productivity is strong as is its earnings growth potential.

The fund favors a concentrated portfolio of around 50 holdings. As is the case with portfolio additions, management only sells holdings after a thorough and disciplined analysis.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Article Republished with permission from <a href="http://www.KCIinvesting.com" rel="nofollow">www.KCIinvesting.com</a> and <a href="http://www.rukeyser.com" rel="nofollow">www.rukeyser.com</a>


This article appears in: Investing , Stocks

Referenced Stocks: ADSK , AKAM , NICE , RHT , WFT

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