It's tough to snag Ed Nicklin for an interview when quarterly earnings reports are coming out. It's his peak hunting season. The 63-year-old manager of the Westport Fund likes the stocks of out-of-favor companies, those with problems he thinks can be solved or those with advantages yet to be recognized. Often, his interest is piqued when promising companies' earnings reports come in below expectations, driving their stock prices down. For him, that's a buying opportunity.

"A lot of money managers look for substantial and consistent earning gains," he says. "I'm more concerned with whether or not management is making progress and moving the value of the business in the right direction."

In an era of index-hugging and the liberal use of computerized quantitative screens, Nicklin and co-manager Andy Knuth do neither in their mostly mid-cap fund. Instead, they go case by case when picking stocks, and keep their eye on the news. Their research can lead to surprising finds. Some of the names in their portfolio, such as Abbott Laboratories or FedEx Corporation, are fairly commonplace among mutual funds. But others, such as the Dr. Pepper Snapple Group or medical instrument company Beckman Coulter, suggest that the two managers aren't afraid to step off the beaten path.

"Academic studies suggest that 60% of a stock's price movement on a given day is due to overall market activity. But if we're doing our job right, we can add value by finding companies with the potential to improve the value of their businesses," says Nicklin.

Although he focuses on each company's particular issues, he isn't blind to the impact that global economic and market developments have on his portfolio. "I've been in this business for many years, and the degree of leverage that the U.S. and other countries are taking on now is unprecedented," he says. "This is really uncharted territory. By its very nature, leverage causes things to occur that wouldn't without its presence."

At the same time, he is concerned that the current U.S. monetary policy designed to stimulate the economy is "setting the table for inflation" and he believes that slightly higher interest rates for borrowers might be in order now that the worst of the economic emergency in this county seems to have passed.

Even if regulators take steps to avoid market routs like the one that occurred in early May (when trading systems triggered automatic stop orders), trading downdrafts will still occur. "Are we going to see market blowouts? Yes. But there are also going to be opportunities to pick up stocks of good companies that have been overly punished by investors."

It is just such stocks that have helped the Westport Fund earn a five-star Morningstar rating and substantially outperform the benchmark Russell Midcap Index since launching in 1997. The Westport Fund was also the top-performing portfolio in Lipper's multi-cap core category over the five years ended December 31, 2009.

Over the last year, though, Westport underperformed the benchmark while the market favored riskier companies with little or no earnings. The fund has also underweighted consumer discretionary and financial services, two sectors that have done well in the economic recovery.

Despite the fund's more recent plodding, Jack Chee, an analyst at investment firm Litman/Gregory in Larkspur, Calif., says the team's approach has worked well over long periods and he finds the firm's patient strategy a refreshing break. "We like that they run reasonably concentrated portfolios and do not attempt to know hundreds of companies, they stick to what they can understand, they have minimal non-research distractions, and are focused on investing," he wrote in a recent report. Knuth recently turned 70, and Nicklin is in his early 60s, but Chee reports they have no imminent retirement plans.