Momentum Player? On His Terms, Maybe

There’s more to small-cap growth than Gary Pilgrim and Louis Navellier. Just ask Stephen McGruder.

When investors think of small-cap growth funds, they often picture high-profile funds that soared in the mid-1990s by taking big risks--only to skid since.

But some small growth managers have turned in respectable performances lately by sticking to more mundane stock picking.

McGruder’s Lord Abbett Developing Growth fund returned 31% last year.

“When you look at the mutual fund pages and who’s in the bottom 10, it’s a lot of the ‘momentum growth’ names,” said Claudia Mott of Prudential Securities. “On the other hand, you still had many growth funds that did well last year that don’t have so much of a swing-for-the-fences style.”

McGruder buys on dips, and he turns over his fund only 35% a year. “We like growth companies, but we like to buy them at the right price,” McGruder said.

To be sure, many managers scoff at being labeled momentum players.

In the truest sense, momentum players buy stocks simply because they’re going up. But most so-called momentum managers insist they’re buying fast-rising earnings, not just chasing hot stocks.

“I’ve largely given up trying to refute the public’s interest in classifying us as a momentum investor,” Pilgrim said. But “for the sake of argument, I’d concede that our interest is investing in today’s crop of companies with the strongest business momentum. That’s momentum to us. I don’t give a damn about price momentum.”