Heartland Advisors: Launches mid cap value fund



Cam Stephenson

(414) 977-8762

[email protected]

Fund will use Heartland’s 10 Principles of Value InvestingTM

Milwaukee, WI, October 31, 2014 — Heartland Advisors announces the launch of the Heartland Mid Cap Value Fund (NASDAQ: HRMDX, HNMDX ). The Fund will seek capital appreciation by investing in businesses with market caps between $1 and $15 billion and will emphasize dividend paying companies. The prospectus is available at heartlandfunds.com/heartland-mid-cap-value-fund-prospecuts.pdf.

“This Fund is a natural extension of our value investing discipline,” said Will Nasgovitz, CEO of Heartland Advisors. “Heartland has experience with mid-cap stocks both through our multi-cap Heartland Select Value Fund and our separate account strategy dedicated to mid-caps. With this Fund, we’re making that mid-cap strategy available to mutual fund investors.”

Heartland’s institutional record managing the mid-cap strategy is available in the Fund’s prospectus.

The Heartland Mid Cap Value Fund will be co-managed by Ted Baszler, CFA, CPA, and Colin McWey, CFA. Following is a Q&A with the portfolio managers about their strategy.

How does a mid-cap fund fit into Heartland’s fund family?

A mid-cap value fund fits squarely within Heartland’s value-oriented discipline and investment team resources. In fact, we’ve managed mid-cap portfolios going back to 1996, applying the same time-tested and consistent 10 Principles of Value InvestingTM as other Heartland products. Our robust research effort at Heartland is a key differentiator relative to other mid-cap managers.

How would you characterize mid-cap opportunities at present?

Our portfolio decisions are primarily driven by valuations and bottom up fundamental research. At a high level, however, we’re attracted to companies that are positioned to benefit from increased economic activity, higher business capital expenditures, and greater consumer wealth. Many stocks within Industrials are appealing right now, with attractive valuations, good future prospects, and a range of catalysts for wider recognition in the marketplace. We also like manufacturing and services companies that sell to end producers in several markets such as home remodeling, construction, and mining. Although we do not seek to play certain themes, our focus on the stocks themselves can lead to an industry focus.

Another theme that’s emerged from our valuation work on individual companies is a bias toward anticipating higher interest rates. Our view centers on some industries where multiples are extended in part because of their perceived status as bond-market alternatives in a low interest rate world. We see little value in Utilities (regulatory pressures; tepid earnings; low growth potential) and Real Estate Investment Trusts (REITs) (competing supply; likely rising financing costs). In the future, we think investors may be disappointed by the lack of dividend growth, and, in some cases, dividend cuts.

The prospectus indicates a goal of limiting downside risk while participating on the upside. How do you do this?

One way to help limit downside risk is to find the crossroads where below-market valuations meet improving company fundamentals. Finding this combination often makes stocks somewhat less susceptible to market corrections and provides meaningful capital appreciation over time, which can happen through improving end markets, company cost cutting initiatives, or sales force realignments. Good candidates are also found in companies that streamline their focus, divest non-core assets, and improve capital allocation via share repurchases and debt reduction. We look across the market for these attributes in companies with below-market valuations.

Why the focus on dividend-paying companies? Is there any special aspect of dividends relevant to mid-caps in particular?

Companies that pay dividends signal to investors some level of confidence around their financial strength and the stability of their earnings and cash flows. Dividends also provide a check on a company’s balance sheet and indicate management’s willingness to deploy capital for shareholders. Beyond the upfront income, these dynamics can lead to greater long-term capital appreciation from enhanced valuations and prudent reinvestment of dividend streams. The positive impact can be magnified when companies steadily grow their dividends. The power of dividends does not apply exclusively to mid-caps, but the mid-cap universe is fertile hunting ground for companies that can maintain and consistently grow their dividends.

The Russell Midcap® Value Index has been one of the strongest performing groups of stocks this year. What’s behind that performance?

At times this year, we have seen indications that high correlations among individual stock returns are poised to fade, which signals potentially welcome relief from the frustrating “risk-on, risk-off” trading patterns of recent years. In addition, there’s more performance dispersion among mid-cap stocks than may initially meet the eye. Although some strong performers continue propelling the index higher, performance within it is mixed. There’s plenty of opportunity to find value in what we believe is increasingly a stock picker’s market. This trend magnifies the possibilities available for active managers to outperform the benchmark, especially in a concentrated portfolio such as the Heartland Mid Cap Value Fund.

The Russell Midcap® Value Index (RMV), given its sector and industry weightings, should benefit in periods of declining interest rates. Additionally, the RMV is a rather U.S.-centric benchmark, with companies that have benefited from the U.S. economic recovery itself. Our investment views also align with economic strength, but more importantly we are optimistic that our approach will yield stronger relative performance if certain macro factors became less dominant.

How long do you typically own a given stock?

We will generally invest over a one to four-year time horizon. Annual turnover will likely range between 20 and 70% over time, dependent on how many stocks are hitting our price targets.

About Heartland

Established in 1983, Heartland Advisors, Inc. is an independently owned equity value investment manager based in Milwaukee, Wisconsin. As of September 30, 2014, the Firm managed approximately $5.5 billion. The Heartland family of value-driven, actively managed portfolios includes distinct U.S. and international strategies, offered through five separately managed account portfolios and five mutual funds: Heartland Value Fund (Investor: HRTVX), Heartland Value Plus Fund (Investor: HRVIX), Heartland Mid Cap Value Fund (Investor: HRMDX), Heartland Select Value Fund (Investor: HRSVX), and Heartland International Value Fund (HINVX). Learn more at www.heartlandadvisors.com.