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.
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
. 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
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
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
At the top of the list you'll find the no-load
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
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
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
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
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
, which we found in four of our eight leaders. And yes, it's a small-cap stock.