You don't expect an octogenarian to surprise you with a makeover. But Massachusetts Investment Trust, which turns 85 this July, has been through a multiyear alteration, courtesy of new portfolio manager T. Kevin Beatty, who gave the MFS Investment Management's flagship a fresh chance at the limelight.

Since Beatty took over the fund five years ago, he has turned things around for this grand dame by reducing the number of holdings and concentrating on high conviction picks. He strayed further away from the S&P 500, something previous managers weren't able to do.

Once A Radical

The Massachusetts Investment Trust is the oldest open-ended mutual fund in the land, founded in 1924. In fact, the fund still holds two stocks from its first year: AT&T and ExxonMobil (formerly Standard Oil). The fund was a radical concept, filling investors' need for a vehicle whose price matched the net asset value of its holdings, something the then-more-popular trust structure didn't always accomplish. The fund also offered liquidity and transparency. Today, there are some 7,000 mutual funds. "We are stewards of that history," Beatty says.

For most of the past two decades, though, Massachusetts Investment Trust has been a mediocre performer. A core blend offering, the fund often looked like a closet index fund, not the innovative product its early history would suggest. Beatty's tenure has breathed new life into the fund while he maintains a conservative approach.

Beatty, who heads up MFS's U.S. research department, and co- manager Nicole Zatlyn emphasize stocks with higher growth prospects than the market, but lower-than-average valuations—a tall order in today's climate. They took the fund's energy exposure way down, believing that oil prices could stay low for a while. They also reduced the number of names in the portfolio to 90, the better to lavish their favorites with research and ongoing maintenance.

Scratching for Points

The makeover seems to be just what the fund needed. In Morningstar's large-cap blend category, Massachusetts Investment Trust placed in the top 11% for the one-year period ended Feb. 6, even though it lost 28%. For the last three years, the fund is down 6.8%, but beat 91% of its competitors.

Despite the impressive results, Beatty insists that he and Zatlyn aren't looking for return at all costs. "We aren't out to hit home runs," he says. "This is a doubles and singles type of portfolio. We are scratching for basis points." That said, the fund skipper places a premium on well-run businesses with experienced management teams that can steer themselves out of the recession. "We don't get that with every stock," he concedes.

But he gets close. Among the names that meet Beatty's criteria is Abbott Laboratories. Healthcare firms are traditionally recession-resistant. But pharmaceuticals have performed poorly due to paltry pipelines and fear of healthcare reform. Medical equipment proved fickle, too, as hospitals cut orders to save money.

But Abbott is different, Beatty says. Its diverse revenue streams—pharmaceuticals, medical technology and nutrition—will help it survive the downturn. "This is a small Johnson & Johnson," he says. J&J also has a spot in the portfolio.

What's more, Abbott is priced right. "It's a company that has earnings growth in the low double digits through 2012," Beatty says. Yet it trades just a tad higher than the market at a P/E ratio of 15.5, based on estimated 2009 earnings of $3.68 per share. The S&P 500, meanwhile, sports a forward P/E of 12.

Abbott declined just 2.5% in 2008, and is up 7.9% year-to-date through Feb. 6, closing at $57.15. "I have more conviction in the valuation of this stock than in the market," Beatty says.

The Survivors

Along the theme of recession survivors is JPMorgan Chase & Co. It may seem unusual to find financials among the holdings of a fund that purports to be as cautious of losses as this one claims to be. Two years ago, Beatty sold out of his position in Citigroup as he grew increasingly uncomfortable with the bank's mortgage holdings. It was a prescient move—Citigroup suffered huge losses for the past five quarters. Beatty, who was previously a financial services analyst, reinvested the proceeds in JPMorgan Chase. He has moved the fund's weighting in financials to 13% today.

With JPMorgan, Beatty isn't making a bet on the entire banking industry and whether any bailout packages will work. Instead, he's betting on management. "We know that Jamie Dimon is a good steward of capital," he says of the JPMorgan CEO. So far, that bet has paid off. In 2008, JPMorgan shed just 25% of its stock price, better than both its banking competitors and the S&P.