5 Best-Performing Funds' Top Stock Picks

Riverbed Technology and FactSet are among select holdings favored by winning investors.
By Frank Byrt ,

BOSTON (TheStreet) -- Riverbed Technology (RVBD) , FactSet Research Systems( APKT), Acme Packet( APKT), Questcor (QCOR) and Tenneco (TEN) - Get Report are common holdings of the best-performing small-cap mutual funds this year.

The shares may have more room to run, given their ascent in the past month.

In a declaration of growing investor confidence going into 2011, small-cap growth funds had a barn-burner of a year, returning 27% on average, double that of the

S&P 500 Index

. The mutual funds are roaring to a close for the year, rising more than 8% over the past four weeks.

Small-cap growth stocks are typically shares of young companies with a market value of up to $2 billion. Forty of 748 small-cap growth mutual funds have gains of at least 32% this year, according to Morningstar data, led by

Managers Cadence Emerging Companies Fund

(MECIX) - Get Report

, with an advance of 40%.

Small-cap growth funds have the best returns of all categories over the past 12 months, edging out small-cap value funds, based on a Lipper compilation of fund benchmarks. (Growth companies are those that tend to post faster-than-average earnings growth. Value companies are viewed as inexpensive and typically carry low price-to-earnings ratios.)

Small-cap growth funds' managers tend to make little bets on many companies. As a result, they hold many stocks. And most cast a wide net, stocking the fund with companies with a range of market values in hopes that one or two big winners will raise returns and render the underperformers' inconsequential.

For example, the

UBS U.S. Small Cap Growth Fund

(BISCX) - Get Report

owns shares of

Bucyrus International

( BUCY), which carries a market cap of $7.3 billion, thanks to the 32% premium that

Caterpillar

(CAT) - Get Report

is paying in its buyout of the mining-equipment maker. It also holds teen-clothing retailer

Wet Seal

( WTSLA), which has a $368 million market value.

Details of the top holdings of five small-cap growth funds follow:

The $635 million

Hartford SmallCap Growth Fund

(HISCX) - Get Report

, up 38% this year, makes Riverbed its top pick at 1.7% of the fund in its universe of 423 stocks. Other top picks are

VeriFone Systems

(PAY)

and

Cheesecake Factory

(CAKE) - Get Report

, both at 1.3% of the fund.

Riverbed, up 198% this year, is a provider of hardware and software that optimizes wide-area communications networks that are transmitting big blocks of data by helping them run faster and more efficiently.

Fidelity and its family of mutual funds is the largest single investor with a whopping 13.4% of Riverbed's shares, according to Morningstar data.

Analysts that follow Riverbed appear unsure of its prospects, as 13 have it rated "buy," two rate it "outperform" and there are 17 "hold" ratings, according to FactSet.

Lord Abbett Developing Growth Fund

(LAGWX) - Get Report

, up 38% this year, has

Acme Packet

( APKT) as one of its top holdings, at 1.5% of the fund. Other top picks of the $1.8 billion fund are:

Aruba Networks

(ARUN)

, up 98% this year,

Opentable

(OPEN)

, up 184%, and

NxStage Medical

(NXTM) - Get Report

, up 195%.

Acme's stock has been a speedy road runner this year, gaining 391%. The company sells telecommunications equipment that facilitates the delivery of real-time audio and video across the Internet using its proprietary software that runs on industry-standard hardware.

Fidelity is its largest investor, owning 8.6% of its shares, led by the $71 billion

Contrafund's

(FCNTX) - Get Report

3.5% stake.

"Acme stands to benefit from ongoing trends in the telecommunications industry," specifically as leader in the niche for Internet protocol real-time video and voice transmissions, where it has a 50%-plus market share, said Morningstar analyst Joseph Beaulieu, in a research note.

UBS US Small Cap Growth

fund

(BISCX) - Get Report

, which is up 39% this year, casts a wide net and has lots of home runs. Among the top picks of the $155 million fund are:

FS Networks

(FFIV) - Get Report

, at 2.9% of the fund, up 152% this year;

Citrus Logic

(CRUS) - Get Report

, 2.3%, up 135% ; and

Rovi

(ROVI)

, at 2%, and up 83% this year.

Given its $2.5 billion market cap,

Tenneco

(TEN) - Get Report

would also seem to be an out-sized pick for a purported small-cap fund, but it appears in several portfolios.

Tenneco, 1.7% of the fund, is a pure auto-industry play as a manufacturer of emissions-control products for new vehicles and after-market products under its Monroe shock absorbers and Walker Exhaust Systems brands.

Fidelity is the biggest investor in Tenneco with an 11.5% stake, about double that of the next largest investor.

Ivy Micro Cap Growth Fund

(IGWIX)

, launched in February 2009, is up 38% this year. It holds 102 stocks, and the portfolio has a 21% allocation to the computer-hardware industry.

Its largest stock holding is

Fortinet

(FTNT) - Get Report

, at 3.1%, which is up 80% this year, followed by

CommVault Systems

(CVLT) - Get Report

, at 2.6% and up 21%.

During the third quarter, the fund initiated holdings in

IntraLinks Holdings

(IL)

, making it the fourth-largest stock, at 2.4%, and

MediaMind Technologies

(MDMD)

, at 1.4%.

Questcor Pharmaceuticals

(QCOR)

is its third-biggest holding at 2.5%. It is up 213% to $14.97 this year, giving it a market value of $924 million.

Questcor develops prescription medications for central nervous system disorders. Its lead drug is Acthar, which is used in the treatment of multiple sclerosis, infantile spasms and nephritic syndrome.

Sales for the nine months ended Sept. 30 were up 38% to $85.8 million from a year earlier, while net income was up 58% to $28.7 million.

Both analysts that follow the company have it rated "buy."

Waddell & Reed Small Cap Fund

(WRSYX)

holds only 47 stocks. The largest is

Stratasys

(SSYS) - Get Report

, 4% of the fund and up 93% this year;

Micros Systems

(MCRS)

, at 4% and up 43%;

Zumiez

(ZUMZ) - Get Report

, 3.8% and up 125%, and

Under Armour

(UA) - Get Report

, 3.6% and up 96%.

FactSet Research Systems

( APKT), at 2.3% of the fund, is up 46% this year. Now trading at $95.45, it has a market value of $4.4 billion.

Two weeks ago, the provider of financial data to the global investment industry reported that in its fiscal first quarter, net income rose 15% to $41.6 million. Revenue increased 12% to $174 million.

Analysts that follow FactSet gave it mixed reviews, with one rating it "strong buy," one "buy," five "hold" and one "underperform," according to First Call/Thomson Financial. Their mean price target is $98.

Morningstar analyst Swami Shanmugasundaram said in a research note that FactSet's long-term prospects remain bright "as investors' insatiable appetite for data is unlikely to diminish" and the company's ability to grow in a tough environment reinforces that. The annual subscriber renewal rate of its products is over 95%, a testament of its products' worth to the customers, he added.

T. Rowe Price is the largest institutional investor with a 12% stake in FactSet.

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