Returns Speak for Unsung Portfolios
Ever heard of the Spectra Fund? How about Interactive Investments’ Technology Value? White Oak Growth Stock? Barr Rosenberg International Small Capitalization? Or Schroder U.S. Smaller Companies Fund?
The odds are that you don’t know any of these tiny funds, which are not routinely listed in newspapers.
Perhaps you should.
Some of these open-end funds boast a five-star rating from Morningstar Inc., the Chicago-based mutual fund research company. Others are too young to be rated but have significantly beaten the market. Most are run by experienced money mangers making their talents available to the public only recently.
Impossible though it may seem in a fund-drenched world, more than 30% of the nation’s 8,300 mutual funds don’t appear in even the most comprehensive newspaper listings of mutual fund prices, according to Norman H. Fosback, editor in chief of Mutual Funds magazine.
The National Assn. of Securities Dealers does not distribute to the media price quotes for funds with less than $25 million in assets or fewer than 1,000 shareholders.
Consequently, Fosback says, mutual fund investors are denied even rudimentary information about what he considers some of the most exciting funds available to individuals.
For its part, the NASD says it has no plans to make inclusion in its media list any easier. However, several weeks ago, NASD directors voted to make information on 1,400 more small mutual funds available to stockbrokers and financial planners through its computer database.
If the Securities and Exchange Commission ratifies the decision, by early 1997 investors will be able to get daily prices for these funds through their brokers or financial planners. An NASD spokesman said the prices will also be available on the World Wide Web at the Nasdaq Stock Market’s site (https://www.nasdaq.com).
The criterion for inclusion on this supplemental list will be $10 million in assets or a two-year operating history.
The move to include small funds reflects the proliferation of funds during the overriding bull market that dates from August 1982.
The business of advising a mutual fund has become extremely profitable as more Americans have taken their savings out of bank accounts and put the money into the market. All that cash looking for superior investment returns has attracted hundreds, if not thousands, of entrepreneurs hoping to cash in on America’s love affair with stocks.
The average management cost tends to decline as a fund gathers more money. If a fund does well and doubles its assets, for example, the investment advisory firm does not necessarily have to hire twice as many people, rent twice the office space or buy double the computers and telephones to manage that bigger pot of money.
Whether an increase in the population of NASD-listed funds will be an unalloyed boon for investors is unclear. After all, there is no shortage of mutual funds and some small funds are deservedly ignored.
But there are small funds worthy of consideration. Some show their best performance when young because a few successful stock picks can make a real contribution to the overall return.
One Lilliputian fund of note is Interactive Investments’ Technology Value, a 2 1/2-year-old fund with $21 million in assets that has gained 60% so far this year, according to the company. Last year, which included a terrible second half for tech stocks, the fund gained 61%, according to Lipper Analytical Services, a mutual fund research company.
Since its inception in June 1994, the fund’s net asset value has risen 200%, more than twice the showing of the average technology fund and triple the rise in the Standard & Poor’s 500-stock index, according to Morningstar.
Interactive invests in electrical and medical technology companies. Steven Witt, an executive at Interactive Investments, the fund’s Milpitas, Calif.-based advisor, said, “What makes us unusual is that my two partners, Ken Kam and Kevin Landis, the portfolio managers, have experience in the industries they invest in as well as having MBAs.”
Some of the other attractive small funds spotted by Morningstar are sponsored by experienced investment firms.
One of them is the $11-million Spectra Fund, managed by David Alger, president and chief investment officer of the New York investment firm Fred Alger Management Inc., which oversees about $7 billion for pension funds and wealthy families.
Spectra Fund gets a five-star rating from Morningstar for its three-, five- and 10-year investment performances.
How can a fund with that kind of long-term record be so small? Because Spectra was a closed-end fund that paid out all its gains to shareholders until last year, when it converted to an open-end fund, David Alger said.
“Spectra is a small fund, but it has the research capability of our entire organization,” he said. “We have an 18-person research staff to manage the $7 billion. Spectra invests in the same stocks as the bigger accounts.”
White Oak Growth Stock Fund is another successful fund overseen by a long-standing institutional money manager, Oak Associates Ltd. of Akron, Ohio. By investing in medium and large companies with good earnings potential, White Oak has bested the S&P; 500 in the last three years, manager Jim Oelschlager said.
