There's no better recommendation than a happy customer.
recent column on how to pick a small-cap mutual fund generated a deluge of testimonials from readers giddy about the performance of their small-cap funds.
Many of these funds have the numbers to back up these grass-roots recommendations. And some are still small enough to be attractive to new investors. After all, finding a good fund that hasn't been flooded with money is half the battle.
Let's take a look at some of the reader suggestions.
Royce Opportunity and Royce Low-Priced Stock
Several readers sang the praises of the
Low-Priced Stock funds. And these Royce funds are definitely praiseworthy.
Royce, as a firm, specializes in small-cap stock picking and is dedicated to hands-on company research. The firm's strategy centers on finding unloved, depressed stocks. Small-cap value stocks were the place to be last year, and these two
no-load funds held up well -- each producing a double-digit return. Both funds also will give you exposure to super-small stocks -- also known as micro-caps.
With more than $700 million in assets, the Low-Priced Stock fund is getting particularly large, and manager Whitney George has increased the number of stocks in the fund, which can be a sign of slackening returns to come. The manager is obviously talented. Let's hope this fund will close before he loses his edge. (You should also take a look at the
Royce Total Return fund, which is run by founder Chuck Royce and Whitney George.)
Oakmark Small Cap
If you're thinking about buying a value fund, whether it invests in large- or small-cap stocks, you should take a look at what
has to offer. The firm's stock pickers and researchers know how to hunt for beaten-down companies with comeback potential. Under manager Bill Nygren, the
Oakmark Select funds have been sensational performers. (Oakmark Select is closed to new investors.)
Oakmark Small Cap fund's long-term performance hasn't been as impressive. Yes, it was up 26.3% last year, when small-cap value stocks were in favor. But when growth was performing well, this fund's returns did not hold up. However, the fund's current managers were not running the fund when it did badly. So if you love Oakmark, this fund deserves a look.
Reader Alan Friedrich asks, "How about the
FMI Focus fund? It has roughly $295 million in assets and a minimum initial investment requirement of $1,000. That should make it attractive to everybody. Plus, it has a darn good track record."
Yes, it does. This fund's five-year annualized return of 32.7% makes it one of the best-performing small-cap growth funds. Over the past 12 months, it has fallen just 0.6% -- a feat, considering the fund's large stake in technology.
Lead manager Rick Lane looks for companies with strong growth prospects selling at a discount to their underlying values. That strategy sounds staid, but it's not. Lane isn't willing to wait too long for a stock to make a comeback. He's a trader, and the fund's turnover of about 200% is high for a small-cap fund. But Lane's quick-trigger style works.
Neuberger Berman Genesis
Tom Medina writes in to recommend the
Neuberger Berman Genesis fund. But like so many good small-cap funds, this one is closed to new investors. It stopped taking new accounts in early December. Now that's good news for existing shareholders, because it means the managers are trying to preserve the character and performance of the fund.
But that's bad news if you're an investor who was trying to get in the door and missed that opportunity. Several of the other funds that readers suggested, including the
Berger Small-Cap Value fund, and the
Bridgeway Ultra-Small Company and
Micro-Cap Limited funds, are also closed.
Buffalo Small Cap
Following the lead of Neuberger Berman Genesis, the
Buffalo Small Cap fund could close in the near future. This fund's phenomenal performance over the past few years has attracted many new investors, arguably too many. But reader Larry Bethel is still interested in learning more about it.
The Buffalo Small Cap fund's three-year annualized return of 35.1% ranks in the top 2% of all small-cap growth funds. The three-man management team of Kent Gasaway, Tom Laming and Bob Male follow more than a dozen trends and themes, such as the aging of the U.S. population and the outsourcing of manufacturing, to uncover stocks with excellent long-term growth potential. The managers are now juggling more than $1 billion in this fund, and it might be time to shut off the flood of new money.
Frankly, it's not the actual size of the fund that should make you hesitate. It's how much cash the fund has taken in within the past year. The fund is about 20 times larger than it was at the end of 2000. The question is: Do the managers have enough good ideas to go around?
CGM Focus is another growth fund that a few readers love. Ken Heebner, a well-known name in the money management business, runs this fund. Its performance has been startlingly spectacular, and this is a good reason not to rush into this fund right now. Often, Heebner will bet on fewer than 20 stocks and short stocks as well -- a strategy that can make the fund extremely volatile. Despite its fantastic returns, this fund is only for money that you can afford to lose.
Thanks to everyone who sent in their suggestions. Sorry that I couldn't get to them all. But I hope everyone has at least one good small-cap fund they can sock some money in.
In keeping with TSC's editorial policy, Dagen McDowell doesn't own or short individual stocks, nor does she invest in hedge funds or other private investment partnerships. Dagen welcomes your questions and comments, and invites you to send them to