Morningstar Magazine - August/September 2017 - 64

Investors

Madison Mid Cap Fund
GTSGX
Growth of $10K

12.65
GTSGX

14K
$

12.43

12

10
Morningstar US
Mid Growth TR

07/2014

07/2015

8
07/2016

Category

Mid-Cap Growth

Expense Ratio (%)

0.98

Morningstar Rating

QQQ

3-Yr Annl Total Rtn (%)

18.2

3-Yr Annl Total Rtn % Rank

26

Source: Morningstar. Data as of 06/30/2017

wide moats, compared with 16% for the
category norm.
Assessing management is another important
aspect of the investment process. They
look at capital allocation decisions, including stock
buybacks, debt repayment, and acquisitions.
Companies that use aggressive assumptions
in their earnings reporting, or try to spin away bad
news, are shunned.
Also important is management's alignment
with shareholder interests, such as high levels
of inside ownership.
"We want to see management teams that
are owner-operators," Toyama says. Take insurer
Brown & Brown BRO, which was 3.7% of the
portfolio as of the end of May. Brown's chairman-
who Toyama says owns 15% of the stock-
is the son of one of the founders, and the current
CEO is the third generation of the family to lead

64

Morningstar August/September 2017

the company. Madison first bought shares in
the second quarter of 2007 in the mid-$20 range,
and it was trading in the mid-$40s in June.

industry is still largely private pay, and
less vulnerable to generic competition than
human pharmaceuticals.

Long-Term Outlook

An exception in technology is enterprise software.
Hardware reseller CDW CDW, which sells
products from different manufacturers, is a stock
they have owned for three years. At more
than 4% of assets, it was one of the top five
holdings in the fund at the end of May.

As a result of the emphasis on wide-moat stocks,
there are some sectors of the stock market
where the Madison fund managers say it's harder
to find names that can make it into the
portfolio. That tends to include consumer-facing
technology where demand can be fickle,
or healthcare, where government regulation is
a constant uncertainty. The fund's stakes in
technology and health are both below the mid-cap
growth category norms.
Animal-pharmaceutical company Zoetis ZTS,
added to the portfolio in February, is one standout
in healthcare. As Toyama and Eisinger said
in the fund's first-quarter report-a frank
and illustrative discussion of both successes
and disappointments-the animal health

"With software, we feel like we can understand
the stickiness of a customer or revenues,"
Toyama says. "We feel we can be agnostic about
which may be winning in the marketplace
as long as CDW does a good job being a consultant." Madison bought CDW for the fund
in the second quarter of 2014 in the high $20 range
and it was at more than $60 in June.
On the valuation side, Madison puts to work
a variety of different valuation models depending



Table of Contents for the Digital Edition of Morningstar Magazine - August/September 2017

Contents
Morningstar Magazine - August/September 2017 - Cover1
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Morningstar Magazine - August/September 2017 - 1
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Morningstar Magazine - August/September 2017 - Contents
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