Thyra Zerhusen: ABN AMRO Mid Cap Fund

She had a rocky 2005, but this year seems to be a winner for Zerhusen. The secret is a deep knowledge of individual companies, she says

Even the best fund managers have lousy years. Thyra Zerhusen had one in 2005, when disappointments with top holdings such as Unisys (UIS) and Reader's Digest (RDA) dinged the ABN AMRO Mid Cap (N class) fund (CHTTX). Her portfolio also lacked utilities and was underweight in energy and financial stocks, all of which were strong last year. All told, her portfolio gained just 1.32% in 2005, vs. 4.51% for other mid-cap blend peers and 11.3% for the Standard & Poor's 400 MidCap index. Still, Zerhusen's five-year annualized gain was 10.1%, strong enough to land her a Standard & Poor's/BusinessWeek Excellence in Fund Management award.

"We still have confidence in Thyra," says Philip Edwards, managing director of Standard & Poor's Investor Services. "We have confidence in the fact that she has a good solid foundation for her stock selection. She does have a good long-term record." Given that her fund has roared back this year, he believes that her problems last year were more short term in nature.

SCOUTING INEFFICIENCIES.

 Indeed, though 2006 is new, the year is looking a lot better. Thanks to rebounds in some saggy names, including Unisys and Englehard (EC), Zerhusen's fund is moving ahead. The portfolio, which zooms in on stocks with market caps between $1 billion and $10 billion, is up 5.4% so far through February, beating her peers and the S&P 400.

Zerhusen, who earned degrees at Swiss Federal Institute of Technology and the University of Illinois, takes pains to know the ins and outs of the portfolio's 40 stocks. "We want to know and understand what we own," she says. By meeting top company execs, "we talk to them and know whether we can trust them."

And she's not afraid to go outside the ring. "We look for opportunities where you can't use databases to squeeze out ideas," she says. "We like to find something that's inefficient, or maybe had a problem recently." She tends to hold companies for at least three to four years, but will trim positions that have run up to recycle the money into some laggards, hoping they'll move up as well.

"PENT-UP DEMAND."

  One of her top holdings that she bought last summer is Biomet (BMET), a maker of knee and hip implants and other surgical products. "It has a very good balance sheet, nice return on equity, good management, and we think the demographics are good [for its business]," she says. She also checked with an orthopedic surgeon about its products.

Overall, she thinks mid-sized companies, especially in technology, are still strong contenders, given higher growth rates than larger ones -- and there's not as much money chasing them. "I think money will flow back into technology because there's pent up demand," she says. "I think I will do pretty well."

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