3
Morningstar FundInvestor
July 2
013
produced strong results elsewhere, and we like
the fund’s new guise.
We also raised
Fidelity Small Cap Discovery
FSCRX
to Gold from Silver when the firm announced
the fund would close to new investors. Chuck
Myers has done an outstanding job, but asset size
and the chance that they would close too late
were our biggest concerns.
On the downside, we dropped
Janus Venture
JAVTX
and
Janus Triton
JATTX
to Neutral from Silver when
Chad Meade and Brian Schaub departed. They did
a brilliant job in their time at the funds, and it’s a real
loss to see them go. However, they may turn up on
Meridian Growth
MERDX
, which was purchased by
their new employer, Arrowpoint. We rate Meridian
Growth Neutral but would review that rating if Meade
and Schaub took over.
Passive Deserves a Look
Many investors choose to index large caps and pick
active small caps. That’s a fine approach, but passive
can work here, too.
Vanguard Tax-Managed
Small Cap
VTMSX
and
DFA US Small Cap
DFSTX
have solid
10
-year returns that rank in the top quar-
tile for the past
10
years. Low costs and a savvy
approach to trading in a liquidity-challenged universe
have helped them succeed where other passive
funds have been mediocre.
DFA
’s strategy is to sell
the stocks that have eager buyers and buy the ones
that have eager sellers in order to reduce or eliminate
bid-ask spreads.
Great Performances
Not that you should buy based on half a year’s returns,
but it’s worth noting where the top performers have
been. Loomis Sayles Small Cap Growth leads the way
with a
23%
gain. Next is passively managed
Bridgeway Ultra-Small Company Market
BRSIX
,
which has gained
23%
—interestingly, that’s a lot
more than other micro-cap funds. And
William Blair
Small Cap Growth
WBSNX
is up
24%
.
There’s not much to unite the three funds. Loomis
and Bridgeway have large health-care weightings and
less in mining and other resource stocks. William
Blair Small Cap Growth doesn’t have that profile, but
Karl Brewer and team have found a diverse group
of growth champs such as
Pandora
P,
Nu Skin
NUS
,
Gentherm
THRM
, and
WNS
WNS
.
œ
Contact Russel Kinnel at
10,000
8,000
6,000
4,000
2,000
p
Morningstar Small Cap Monthly P/E
p
Morningstar Small Cap Monthly USD
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
30
24
18
12
6
Small Caps Have Rallied but Valuations Have Not Returned to 2003 Levels
Data through May 2013.
Peak P/E
Lowest P/E
