Five Funds: Small Growth Funds With Supersized Returns

1. (ACRNX Quote)Liberty Acorn

Ralph Wanger is one of my favorite fund managers -- and not just because of his dry wit, which is on display in this recent 10 Questions interview. He has been at the helm of this fund since 1970 -- he was joined by co-manager Charles McQuaid in 1995 -- and has proven his mettle time and time again.

The no-load Acorn has the returns to prove it -- his one-, three-, five- and 10-year returns are in the top decile of all small-cap growth funds. Acorn's 10-year average annual return of 11.6% beats 95% of its peers. Wanger has managed this impressive track record by straying from the herd, avoiding inordinate risks and sticking with long-term winners such as International Game Technology(IGT Quote) and Expeditors International of Washington(EXPD Quote).

The fund has $5.68 billion in assets, but Wanger and McQuaid spread their assets over more than 250 companies and haven't shown any diminution of skills because of the large asset base. The skippers also have kept turnover low, which has helped keep expenses down. The expense ratio of 0.82% is half as much as the 1.66% category average.

Full disclosure: This is the small-cap growth fund I own in my IRA.

2. (MERDX Quote)Meridian Growth

I have a soft spot for solid funds like Rick Aster's $308 million-in-assets Meridian Growth that underperformed in 1999. Why? Because that year marked the height of insanity -- the returns, which Morningstar provides, are the easiest way to tell if a fund manager refuses to follow the crowd when it's deluded.

Meridian's 13.3% return in 1999 was topped by 88% of all small-cap growth funds, but the fund has more than made up for it this decade. Its three-year average annual return of 3.13% places it in the top 2% of all small growth funds, and its one-, five- and 10-year returns (9.88% average annual) are all within the top 15% of its peers.

As you might expect, Aster -- at the helm since 1984 -- takes a conservative approach to growth, refusing to pay too much for hot stocks or sectors. That has led him to load up his fund -- which holds 45 stocks -- on retailers like Ethan Allen(ETH Quote) and restaurants like Sonic(SONC Quote) and Applebee's(APPB Quote). Look elsewhere for aggressive growth during the market's heady bull runs.

If you're looking for steady long-term growth, excellent management and lower expenses (a 1.06% expense ratio), no-load Meridian Growth is a good pick.