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You might not know much about the Morningstar
Medalists I’m looking at this month—those with the
smallest asset bases. There’s something of a theme,
too, as each one comes from a boutique firm. Some
are small even by boutique standards.
Funds like these would be larger than they are with a
big marketing staff to support them. Three of the
funds originated from old-fashioned firms that began
by running all of their clients’ money. Doing that
generally means that you take a conservative approach,
because clients might not be diversified across
a wide array of asset classes the way they’d be at a
bigger complex.
That’s why some have been lagging recently. It can
be tough for conservative funds to keep up in a strong
rally. Yet, the fact that they are different from
funds you’d find at a big fund company is part of their
appeal. I’ll take them from smallest to largest.
Berwyn
BERWX
has just
$130
million in assets and
a Morningstar Rating of
2
stars, so it would be easy to
skip over it. But you can see its appeal in the way
it held up in January and February
2016
. It lost much
less than its peers and now has a modest
4%
gain
through April. It also produced top-quartile perform-
ance in tough markets like
2011
and
2008
. The fund
seeks out good values among micro-cap stocks and
the small end of small caps. It also holds cash and
has a fondness for basic-materials stocks, which can
protect against inflation spikes. However, those
materials stocks stung in
2015
when commodities got
crushed. Lead managers Robert Killen and Lee Grout
are seasoned veterans who have steered the fund
through a variety of markets.
Royce Special Equity Multi-Cap
RSEMX
has likewise
shown it knows how to protect the downside. Charlie
Dreifus’ fund has a nifty
5
.
5%
return, landing in the
top
5%
of peers for the year to date. This is mainly on
the strength of the defensive qualities that share-
holders have long known about in his
Royce Special
Equity
RYSEX
. This fund, with a Morningstar Analyst
Rating of Bronze, has just
$135
million in assets,
however, because it was launched at the beginning of
2011
and hasn’t had much of a chance to show its
strengths. Its five-year returns are unimpressive, but
Dreifus’ conservative style is still a good bet for solid
risk-adjusted returns. It may take a bear market to win
more shareholders, but you don’t have to wait.
Mairs & Power Small Cap
MSCFX
earned a Silver
rating from us in June
2015
but remains at just
$209
million in assets. While Royce Special Equity
Multi-Cap took a time-tested strategy up in market
cap, Mairs
&
Power went in the other direction.
So far, things have gone very well for Andrew Adams,
who has produced top-decile performance for the
past one and three years. Adams has been with the
firm since
2006
and has run the fund since
2011
.
He looks for companies with strong balance sheets
and sustainable advantages, as do other Mairs
&
Power funds. Turnover clocked in at a low
23%
in
2015
, reflecting the patience of management.
Perkins Global Value
JGVAX
is part of Janus, so you
might think it could drum up some shareholders, but
the fund still has just
$227
million in assets. Perkins
chief investment officer Greg Kolb has largely matched
the returns of the benchmark and peers during his
tenure, but he’s done so with less risk. The fund lost
much less than peers and its benchmark in
2008
and
2011
. He looks for cheap stocks with strong cash
flows and healthy balance sheets. Defensive names
like
Procter & Gamble
PG
have held up nicely for the
fund in
2016
.
K
The Smallest Medalists
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.