It’s all too easy to fall into a value trap when buying beaten-down stocks, as they often get even cheaper or simply don’t budge. That’s why we like the value-oriented fund FMI Large Cap (FMIHX), whose lead manager recently told Barron’s that his job is to be in the “rejection business.”

The fund’s management team likes to buy stocks that have fallen out of favor with the market. But as true contrarians, they even apply deep skepticism toward their own investment process. This means that a lot of promising ideas don’t make it past the fund’s nine-member investment team, nearly all of whom are Chartered Financial Analysts (CFA).

This rigorous approach has achieved outstanding results. FMIHX gained 9.5 percent annualized over the past 10 years, beating the market by nearly 3 percentage points per year. Even more impressive, the fund incurred less downside volatility than the market, despite the fact that its portfolio holds an average of just 20 to 30 names.

It helps that Milwaukee-based Fiduciary Management, Inc. (FMI), which runs the fund, is a small, employee-owned firm. Each member of the investment team serves as both an analyst and portfolio manager. And management’s interest is firmly aligned with shareholders: All nine portfolio managers invest in the fund, with seven owning at least $100,000 in shares.

That ownership ethos extends to how the team builds the portfolio. Management acts act like a private-equity firm when evaluating each name, crunching the numbers as if they were buying the entire company. The team works closely together, first vetting intriguing names in a group before undertaking more serious research individually.

The team looks for stocks that have stumbled due to what it believes are temporary headwinds, and then screens them based on standard valuation metrics, such as price-to-earnings (P/E) and price-to-sales (P/S). A company must offer essential goods or services, and its business model must be easily understood, factors that bode well during economic downturns.

The team also pays close attention to return on invested capital (ROIC), a way of ensuring that a company can earn more than its cost of capital over a full business cycle. Finally, they hope to partner with shareholder-friendly executives able to skillfully reinvest or make acquisitions without taking on excessive debt. Once a purchase is made, it’s usually held three to five years.

When shares of Expeditors International of Washington (NSDQ: EXPD) dropped sharply during the second quarter, the fund used that as an opportunity to initiate a position. The global logistics company has grown at above-average rates with strong returns on capital; but its shares, which normally trade at a premium, fell on fears about slowing international trade. Then in the third quarter, management boosted its position in Bank of New York Mellon Corp (NYSE: BK) by almost 40 percent. The custodian bank and money manager, which the fund first bought back in 2006, is now its third-largest holding.

With its rigorous approach to stock selection, FMIHX finds names that trade at a discount, but won’t languish there for long.