A mattress maker may sound like a sleepy stock, but it's been a huge win for Trimark U.S. Small Companies fund.
U.S.-based Tempur-Pedic International Inc. , a manufacturer of memory-foam mattresses, first caught the eye of mutual fund manager Rob Mikalachki in 2004.
He didn't buy right away, but only after its stock tumbled to about $11 (U.S.) a share the next year on worries about competition from copycat rivals. He bought even more when the shares plunged to the $5 level from around $30 during the 2008-2009 market meltdown.
"If there was a company that you wanted to stay away from in the recession, it was probably a company selling $3,000 mattresses, but we knew it was going to be a winner," said the portfolio manager with Invesco Trimark Ltd. "Its stock went all the way up to $65 in early 2011, which is when we sold our last shares."
Trimark U.S. Small Company Class is the winner of a Lipper Award for one- and three-year performance. Tempur-Pedic, which posted an average annual return of 18 per cent for the three years ending last Oct. 31, was the biggest contributor during that period.
The manager was confident about his bet on Tempur-Pedic because his research indicated the firm had a competitive edge that could not be easily duplicated.
"I had spent a half a day with them learning how much technology and process know-how was in their beds," recalled Mr. Mikalachki, who got his start in the money management business as an analyst at former Trimark Financial Corp. in 1999.
There is tangible comfort sleeping on a Tempur-Pedic mattress that is backed up by customer enthusiasm and sleep studies, so "it is not a luxury item" for many people, said the value-oriented manager who normally has a concentrated portfolio of 20 to 30 stocks.
Some of his names have been takeover targets over the past year, including Kinetic Concepts Inc., Smart Modular Technologies Inc. and Talecris Biotherapeutics Holdings Corp. Solutia Inc., a specialty chemicals company, was acquired last month by Eastman Chemical Co.
"We have about 25 per cent in cash now, and are trying to put it to work," he said. "It has taken longer than what we would like to find companies. … We might be a little picky."
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How the winners stacked up: