Anatomy of a Mutual Fund

A peek at how MDL Capital Management handles its investors' money provides clues to how your mutual fund is run

Mark D. Lay, chairman and CEO of MDL Capital Management, wants you to buy his mutual funds. And he’s pitching them to you in several ways: as no-load funds you can buy directly from his firm for a minimum investment of $500; as load versions of his funds you’ll be able to buy from your insurance agent; or by managing your 401(k) plan.

MDL, a Pittsburgh, Pennsylvania, money management firm with $1.7 billion in assets, has big plans for 2000. In addition to its more than 52 institutional clients, it wants to win more retail customers. The cornerstone of this strategy is its two mutual funds: the $28 million MDL Large-Cap Equity Growth fund (Nasdaq: MLGEX), managed by Steve Sanders, president and chief economist at MDL; and the $23 million MDL Broad Market Fixed Income fund (Nasdaq: MBMFX), which Lay runs (800-932-7781). Both were launched in November 1997 and are members of the black enterprise Black Mutual Funds Index (see “Fantastic Voyage,” Moneywise, this issue).

The funds’ performance, especially that of the equity portfolio, should help MDL in its quest for your business. Through the end of 1999, MDL Large-Cap Equity was up 20.8%, beating the Standard & Poor’s 500-stock index’s 19.53% return for the year. Although MDL Broad Market Fixed Income is down 2.4% for the year-1999 was a bear market for bonds-that’s just slightly worse than the loss the Lehman Brothers Government/Corporate Bond Index, the benchmark MDL measures the fund by, suffered. It was down 2.15% for the same period.

MDL’s two funds are run somewhat conservatively. And as a self-described growth manager, the firm’s equity fund in particular benefits from the trend that has kept the bull market running: fast-growing stocks with rapidly rising earnings.

FROM NICHETO NATIONAL PLAYER
MDL Capital Management is essentially a microcosm of the mutual fund world. Examining how Lay and company manage its two funds will give you an inside glimpse at how fund companies operate. You’ll learn how MDL picks winners, discards dogs, shapes its investment philosophy and policy, and develops its marketing strategy.
You may not have heard of MDL, but if you’re an employee of the city of Baltimore, a member of United Steelworkers Local 1197 or an employee of Boeing (NYSE: BA)-just three of MDL’s clients-the company is managing your money.

MDL, which operates in 16 states including Pennsylvania, New York and Georgia, faces a daunting challenge: it must transform itself from a niche asset management company handling public and private money to one with a larger national presence.

“All new money isn’t good money. We’re trying to get good clients. We’re looking at different states, and different clients within those states,” says Lay, a 16-year market veteran. “Don’t get me wrong. We still want to grow the firm. We currently are a niche player, but we want to be a mainstream money management firm.”

“We want to be in more 401(k), 403(b), and 457 plans,” says Sanders, an 18-year securities industry veteran. “We like the 401(k) market because the selection process [for new funds] is

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