Mutual funds are seldom known for having exciting — or even enticing — ticker symbols. Then there’s Marshfield Concentrated Opportunity Fund, ticker MRFOX, which specializes in zigging when others zag. The fund’s founder and managing principal, Christopher Niemczewski, arrived at the ticker, MRFOX, in a manner similar to how the group makes investment decisions — by brainstorming with others. Niemczewski and Elise Hoffman, a principal at the fund, landed on the ticker after brainstorming around what letters might work, starting with “M” for Marshfield and ending with an “X,” which designates all mutual funds. “We are sort of a little low-key like a fox,” said Hoffman, adding that the animals are also excellent hunters. “If you’ve ever seen a field that a fox is going through, they kind of go around the edge and sneak around and they do it quietly, and I think there’s something fox-like about how we approach things.” The fund’s performance has also stood out this year. It has a positive total return of 6.4% so far in 2022, according to Morningstar , compared with a total return loss of some 15.7% for the S & P 500. That’s won the fund a top performance rating in U.S. large growth funds by Morningstar – it’s ranked in the first percentile in 2022, after being ranked in the 72nd and 96th percentiles in 2021 and 2020, respectively. The category overall, has a return of -27.1% this year. “Our main goal is to outperform the market but also to preserve capital,” said Hoffman. The firm’s style has historically lagged the broader market in up years but has outperformed in down years. “In down markets we really prove the benefit of the kind of slow, steady, conceptual and intellectual approach that we take,” said Hoffman. Fund history and strategy Marshfield Associates is a Washington D.C.-based firm founded in 1989 by Niemczewski, who’s now joined by Hoffman and another principal, Chad Goldberg. The MRFOX fund started in 2015 as an outgrowth of a separately managed account business to offer its investment strategy to smaller investors — the minimum investment is $10,000 for personal accounts, but a $1,000 threshold for individual retirement accounts or uniform gifts to minors accounts. As of Nov. 25, the fund had more than $375 million in assets and an expense ratio of 1.05% after contractual fee reductions and expense reimbursements. The strategy of the fund is the same as the firm’s separate account business, said Hoffman. “It is based on investing only in companies about which we have a lot of confidence,” she said, adding that the fund generally holds between 16 and 24 positions and is completely agnostic as to sector. “We’re highly concentrated and we really care about the company quality and the nature of the industry in which the company works.” While Morningstar classifies the fund in the growth category, Marshfield regards itself as value-oriented with a stress on company quality. “I think what you’re seeing this year is the outcome of what happens when you have an investor like us, that is very different from the market,” Hoffman said. “We intentionally try to be as different from the market as we can be in ways that make sense to us and then add value.” For example, that means that the fund is willing to hold large amounts of cash while waiting for good opportunities to deploy it. Cash was roughly 20% of assets at the end of September. How Marshfield picks companies The fund has a specific protocol for researching companies that includes lots of research, considering macroeconomic trends and looking at cash flows over 15 years. “We are voracious readers,” said Hoffman. Basically, the firm hunts for names that have compelling value over their competitors and demonstrate a high level of resilience, finding companies that can weather some slack in earnings and have positioned themselves to perform well regardless of the macroeconomic background. “What we want in a company is one that has a sustainable competitive advantage over a fairly broad horizon,” said Hoffman. “When we go through a time of tumult it’s not just our cash that cushions us, it’s the companies themselves.” The firm has some very specific brick and mortar retailers in its fund for a reason, said Hoffman. For example, the fund’s largest position at the end of September was in AutoZone, which Marshfield sees as uniquely positioned in the auto parts market in a way that protects it from being displaced by Amazon. Some things you just can’t do online, including getting quick access to parts for car repairs, she said. The firm is also not opposed to holding competitors in the portfolio if both companies pass their rigorous checklist for investment. For instance, at the end of the September quarter the fund held Mastercard and Visa, but that doesn’t mean they wouldn’t also research Discover. Not all sectors represented The research team and the principals all do the research collectively — there are no sector assignments —and anyone in the group can come up with an idea. This means that curiosity dominates, and the firm might do a lot of research on an industry or company before deciding it isn’t ready to invest. One popular sector that’s completely missing from the fund is technology. “We talk to [tech companies] with some frequency, but we do understand the limits of our own ability to anticipate what’s likely to happen in the space,” said Hoffman, adding that this doesn’t mean Marshfield wouldn’t invest in a technology company in the future. The firm also doesn’t invest in oil and gas producers as it feels it doesn’t have the expertise to make a solid decision right now. “If we can’t conjecture about what’s likely to happen in that space and who has the competitive edge and know who the winners and losers are likely to be, we just think we have no business being there,” she said. Because the group feels so strongly about its strategy, they don’t hold any other publicly traded securities than the ones in the fund and take a last in, last out approach. “We figure if you eat your own cooking, it really focuses the mind,” said Hoffman. The group has had success in sticking to its strategy and realizes that it’s not to every taste. “We have a very specific style that’s not for everyone,” Hoffman said. “It’s like an Italian restaurant – if you want French food, go to a French restaurant.”
