Mosaic's Jay Sekelsky assembles an eclectic, bear-resistant fund.

Warren Buffet once decried what he saw as the artificial distinction between "growth" and "value" investing in a Berkshire Hathaway annual report. "What is investing," he asked, "if it is not the act of seeking value at least sufficient to justify the amount paid?"

Jay Sekelsky, the 43-year-old manager of the $112 million Mosaic Investors Fund, puts it a little differently. "We buy the best companies at reasonable valuations," he says. "I don't care about labels."

The approach bears the markings of growth-at-a-reasonable-price, while Morningstar puts Mosaic Investors Fund in the large-cap blend category. Whatever the label, the strategy produces an eclectic portfolio where stocks usually categorized as growth issues, such as those in the technology sector, keep company with those selling at below-market multiples.

While fund holding Microsoft falls into the former category, Sekelsky believes the stock is cheaper than it appears on the surface. At a recent price of $27, he notes, it trades at about 25 times 2004 estimated earnings of $1.10 a share. But if you only consider earnings from operations and exclude interest from the company's huge stockpile of cash, Microsoft's price-earnings ratio drops to a less pricey 21 times 2004 earnings. Other holdings in the technology sector include Nokia and Automatic Data Processing.

Depending on the market environment, Mosaic Investors can resemble a value fund, as it did in 1999 when the market's emphasis on growth at any cost amplified its price-conscious behavior. But Sekelsky has no problems committing to what many consider traditional growth stocks when they are out of favor. Earlier this year, he increased the fund's exposure to the technology sector to 14% of assets as stocks he had been eyeing for years, such as Cisco Systems, fell to depressed levels. The position marked the first time since 1998 that Mosaic Investors' exposure to the sector roughly matched that of the Standard & Poor's 500 Index.

The stance proved relatively short-lived. Sekelsky sold Cisco about six weeks after the initial purchase because its price, which jumped about 60% during the holding period, had gotten too rich for his taste. At mid-year, the fund had about 8% of its assets in tech stocks.

Over the last three years, Sekelsky's aversion to high-priced stocks helped the fund avoid losses and beat the market. As of June 30, Mosaic Investors' three-year annualized return, while about flat, beat the S&P 500 Index by nearly 11 percentage points annually and put it in the top 3% in its Morningstar category. Over the last five years, its annualized return of 3.07% placed it in the top 6% of its category.

While Mosaic Investors was up 9.8% during the first six months of 2003, it trailed its category average by about one percentage point for the period, and lagged the S&P 500 Index by two percentage points. And in 1998 and 1999, the fund underperformed its more aggressive large-cap peers as Sekelsky refused to buy technology stocks at prices he considered too high. Morningstar analyst Marketa Larsenova calls Mosaic Investors "a very good choice for large-cap exposure," but cautions that "management's preference for value fare may cause the fund to lag its more aggressive peers when growth stocks are on top."

Sekelsky says his goal is to fully participate in up cycles while protecting against losses in down markets. "Over the long-term," he says, "that has led to outperformance." When he buys a stock, he likes to see a ratio of upside potential to downside risk of about 3 to 1. So if he expects a stock to appreciate 30% over the next year, he anticipates that it will not drop by more than 10% over the same period. "Some investment managers buy stocks that could go up 70% if they're right, but fall 60% if they're wrong," he says. "That kind of risk is just not acceptable to us."

Sekelsky credits the University of Wisconsin's Applied Securities Analysis Program, which gives graduate students the opportunity to run a real portfolio using grant money, with helping to solidify and define his measured investment style. It also opened the door to job opportunities after graduation through its network of alumni, which includes Chicago-based Oakmark Fund manager William Nygren.