The Daily Screen: Small-Cap Growth Funds With Long-Tenured Managers

It's not easy to find a small-cap growth fund with a manager who's beaten his or her peers and stayed put, but that's the beast we're hunting today.

Usually the Daily Screen combs through a different fund category each day, sifting for those funds that beat their average peer over the last one- and three-year time periods. But this week, we're changing the rules a bit by adding manager tenure into the mix. After all, a little experience is usually comforting, especially in a market as tough and messy as this one.

We're starting with small-cap growth funds, and this is an area where a little extra time on the job can be a big boost. Small-caps or stocks with market capitalizations below $1.5 billion aren't typically covered as thoroughly by Wall Street analysts as mega-caps like General Electric or Cisco Systems. That often leaves fund managers and their staffs to rely more heavily on their own work. And the quality of that work is, as always, important, because small-cap stocks are often the equivalent of a home-run swing. Because they're often stocks of younger, less stable companies, they can lead to big returns but also big losses. Though Microsoft was once a small-cap stock, many other shops fade into the ether.

Like most growth funds, this pack has had a tough year, shedding 8.5% on average since Jan. 1. That said, they haven't lost as much as big-cap growth funds and tech sector funds. Beyond the chance for big returns -- the average small-cap growth fund rang up a 61.7% return last year -- these funds can also add to your portfolio's diversification because they don't always move in lockstep with the big caps in the S&P 500.

What's in a Name? Small-cap growth funds, on average, have lagged behind the broader market.
	Avg. Small-Cap Growth	S&P 500
YTD Return	-8.5%	-7.6%
1-Year Return	1.0	-3.5
5-Year Return	14.0	18.8
10-Year Return	16.7	17.8
Source: Morningstar. Annualized performance figures through Dec. 8.

If you're looking for a solid performer with an experienced manager, we've looked into the matter. We screened the 214-fund category to single out those that are open to new investors, beat their average peer since Jan. 1 and over the last five years -- with the same manager they have today. Only eight made the cut and here they are ranked by their one-year returns, according to Morningstar.

Not Johnny-Come-Latelys These funds have beaten their peers over the last five years with the same manager at the helm.
Fund	Year-to-Date Return	5-Year Annualized	Manager Tenure
(WAAEX Quote)Wasatch Small Cap Growth	11.1%	17.8%	14
(PMCIX Quote)PIMCO Micro Cap Instl	11.0	14.2	7
(GCBLX Quote)Green Century Balanced	10.7	21.6	5
(ATSCX Quote)Chase Small Cap Premier	8.3	15.8	7
(EGWAX Quote)Evergreen Growth A	8.3	14.9	5
(VLSCX Quote)Value Line Emerging Opportunity	4.0	17.7	7
(ACRNX Quote)Liberty Acorn Z	3.8	17.9	18
(REGAX Quote)Reserve Small Cap Growth	-2.9	23.3	6
Avg. Small Cap Growth fund	-8.5	14.0	2.2
S&P 500	-7.6	18.8	-
Source: Morningstar. Annualized performance figures through Dec. 8.

At the top of the list you'll find the no-load (WAAEX Quote)Wasatch Small Cap Growth fund, which isn't famous, but has a record that's tough to ignore. Jeff Cardon has held the reins since the fund's 1986 inception and his track record is solid. Thanks to his measured approach, the fund beats 75% of its peers over the last one-, three-, five- and 10-year periods, according to Morningstar.

One knock on the fund, however, is that as of Sept. 30, the fund had some 40% of its assets in mid-cap stocks. That's common among many small-cap funds -- strictly selling small-caps that graduate can leave a lot of money on the table -- but if you're a purist you should keep it in mind.

In fact, runner-up (PMCIX Quote)Pimco Micro Cap is the only fund on our list that doesn't have significant mid-cap exposure. But since the fund, run quite well by sub-adviser Cadence Capital Management since its 1993 inception, appears to only be available to institutions and fat cats who can afford a $500,000 minimum investment, it's not really available to the rank and file. That said, financial planners with sizable assets under management can sometimes get access to funds like this for their clients.

Aside from the funds on this list, you might also look at no-load (MGSEX Quote)Managers Special Equity. This fund gives a portion of its assets to four different sub-advisers -- Kern Capital Management, Liberty Investment Management, Pilgrim Baxter & Associates and Westport Asset Management -- and that's worked out well since the fund's 1984 inception.

The fund beats its average peer since Jan. 1, as well as over the past one-, three-, five- and 10-year periods, according to Morningstar. It seems to have only missed our list by not having a start date listed for its sub-advisers in Morningstar's records.

Another intriguing, though currently battered, option might be the (BGRFX Quote)Baron Growth fund, which doesn't levy a sales charge, but does carry an annual 0.25% 12b-1, or marketing fee. High-profile -- and controversial -- manager Ron Baron has held the fund's reins since it started at the end of 1994. The fund's eclectic, tech-light approach worked well initially but has faltered recently -- for the record, on Sept. 30 some 35% of its money was in mid-caps.

The fund's 17.2% three-year annualized return beats about 65% of its peers. But the fund, down 10.6% since Jan. 1, lags its average competitor over the last one- and three-year time periods.

If you're the curious type or just cruising for small-cap stock ideas, we screened our eight leading funds' portfolios for a list of their cumulative top-10 picks. As you can see, there's not a slew of consensus aside from multimedia semiconductor shop Oak Technology, which we found in four of our eight leaders. And yes, it's a small-cap stock.

Under the Hood The stocks with the biggest weighting in the combined portfolios of the eight above funds.
Stock	Weighting in Top-Eight Funds	Number of Top-Eight Funds Owning the Stock
Oak Technology(OAKT Quote)	0.9%	4
On Assignment(ASGN Quote)	0.8	3
NPS Pharmaceuticals(NPSP Quote)	0.8	3
Cross Timbers Oil(XTO Quote)	0.8	3
Avocent(AVCT Quote)	0.8	3
Christopher & Banks(CHBS Quote)	0.8	2
ATMI(ATMI Quote)	0.7	2
Merix(MERX Quote)	0.7	2
Fuelcell Energy(FCEL Quote)	0.7	1
Chico's FAS(CHCS Quote)	0.7	3
Source: Morningstar. Holdings as of funds' most recent portfolio reports.