11 May 2011 Meridian Value Fund - Q1 2011 Commentary ( Portfolio )
Our investment strategy remains unchanged. We continue to seek out-of-favor companies exemplified by an extended period of declining earnings. Over the past two years most earnings problems were related to poor economic conditions. During this period we invested in many high quality companies at attractive valuations. These are companies, in most cases, with leading and defensible market positions, high returns on invested capital, strong balance sheets and proven management teams. Many of these investments lagged the market during the strong rally off the 2009 market lows and continued to underperform in 2010 as the market favored smaller, higher growth companies. With some stability in the economy, we now see more companies that fit our strategy for traditional company-specific reasons. This is historically the strength of the Meridian Value Fund and should bode well for future performance. We hold 53 positions, representing 31 industry groups. We continue to invest in companies of all market capitalizations and our largest areas of concentration are technology, retail and transportation.

During the quarter we purchased shares of Aecon Group, General Cable, Bally Technologies, Cintas, EOG Resources, Flowserve, Heartland Payment Systems and Mobile Mini. We sold our positions in Arkansas Best, Acxiom, Franklin Resources, Cameco and The Travelers Companies.

We recently invested in EOG Resources, a leading North American oil and natural gas company with an attractive portfolio of diversified land-based properties. EOG suffered down earnings due to the commodity price declines in 2009. These weak earnings were prolonged and exacerbated by a large bet on natural gas that left the company particularly vulnerable to continued weak gas prices, which have dramatically lagged the price of oil due to large increases in domestic gas supply. The company has embarked on an aggressive transformation by re-allocating investment capital from natural gas to oil producing properties. Oil and liquids should reach 69% of production in 2012, up from 41% in 2009. This shift should drive strong earnings improvement barring a significant decline in energy prices from current levels. EOG has a solid balance sheet and has historically been viewed as a conservative, well managed company and as such is a good fit for our traditional strategy of investing in good companies suffering temporary problems.