18
Investors remain cool to equities. Despite a huge
five-year rally, fund flows have gone negative for U.S.
stock funds in May and June. That’s actually good
news if you are in the market for a stock fund. There
are quite a few appealing funds with small
asset bases.
A small asset base enables the manager to invest
exactly the way that he or she wants to, and that can
lead to strong returns. With that in mind, here are a
few hidden gems among our Morningstar Medalists.
Silver-rated
FPA Perennial
FPPFX
was sheltered
from the world by
FPA
’s odd setup. The firm had front
loads but no salesforce to get it in front of brokers.
That’s one way to remain sheltered from the outside
world. However,
FPA
went no-load, and funds like
this conservative mid-growth fund are worth a close
look. Eric Ende and Greg Herr are patient growth
investors who are too value-conscious to go for high-
fliers. Instead, they prefer less-exciting stuff like
CarMax
KMX
and
Signet Jewelers
SIG
. Comanager
Steve Geist retired in June, but Ende and Herr should
keep things on track.
LKCM Equity
LKEQX
has been overlooked, but this
large-cap fund has a strong record of nearly
20
years.
Although many investors haven’t heard of
LKCM
,
it has
35
investment professionals in Texas plying a
wide-ranging strategy that has held up well in down
markets. We give the fund a Silver rating.
Since its
1995
inception, the fund has returned
8
.
5%
annualized versus
7
.
5%
for the Russell
1000
Growth Index and
7
.
05%
for the category. Most
impressive was its performance in
2008
and
2011
,
when it held up much better than its peers. Over
the November
2007
to February
2009
bear market,
the fund lost
44
.
8%
versus
50
.
2%
for the average
large-growth fund.
Royce Special Equity Multi-Cap
RSEMX
looks
particularly appealing this far into a rally. Manager
Charlie Dreifus’ small-cap fund
Royce Special
Equity
RYSEX
has always held up well in down
markets, and I’m expecting the same from this
larger-cap fund. Dreifus is a stickler for good account-
ing practices, low valuations, and modest debt.
Those are all good things to build into a portfolio
when the market slumps. We rate the fund Bronze.
Bronze-rated
Becker Value Equity
BVEFX
is run by
a good value boutique out of Portland, Oregon.
Although Robert Schaeffer just retired, the rest of the
team is deep. The team has a rather democratic
process where all members have a say in stock selec-
tion. The emphasis here is on high return on invested
capital and good management.
Since its launch in November
2003
, the fund has
returned
9
.
3%
annualized versus
7
.
3%
for peers and
8
.
3%
for the Russell
1000
Value Index. The fund’s
consistent performance has kept investors in the fold,
as evidenced by the fact that investor returns follow
total returns pretty tightly.
Diamond Hill Small-Mid Cap
DHMAX
is new to the
Morningstar
500
, but if you invest through an advisor
you may find a lot to like. This is run by a Columbus,
Ohio, boutique with a great record in the Graham and
Dodd school. Chris Welch simply wants good busi-
nesses at sizable discounts to their intrinsic values.
It’s a patient value portfolio with lots of financials and
consumer defensive names. We rate it Gold.
Silver-rated
Champlain Mid Cap
CIPMX
is another
good example of a small-cap manager going up
to mid-caps. Lead manager Scott Brayman has built
a strong record here, at
Champlain Small Company
CIPSX
, and before that at Sentinel funds. Brayman
wants companies that dominate their niche. He looks
for companies with high returns on equity and
low debt levels. The fund lost less in the
2008
–
09
bear market than the index or peers, as did the
small-cap fund.
œ
Under-the-Radar Favorites
Tracking Morningstar Analyst Ratings
|
Russel Kinnel
What Are Morningstar
Analyst Ratings?
Our ratings are chosen for long-
term success. Analysts assess
a fund’s competitive advantages
by analyzing people, process,
parent, performance, and price.
They do rigorous analysis and
then submit their ratings to a
committee that vets their work
for thoroughness and consistency.
