Screen Gems: These Growth Funds Racked Up Gains in 2000
Last year was a rough one for most growth-stock mutual funds, but some managed to quietly rack up gains.
The Times screened Morningstar Inc.’s database (https://www.morning star.com) to find growth funds that not only performed well last year, but also have done so consistently.
We checked for no-load growth or technology funds that finished 2000 in the black, and that also beat the blue-chip Standard & Poor’s 500-stock index over the trailing three-year period, in addition to meeting several other requirements.
Eleven funds emerged, including one offering, Icon Information Technology, that managed a 14.1% gain in 2000 despite the tech sector’s swoon, and a few that did even better, including Meridian Fund, a general small-cap fund that surged 28.2% last year.
Along with the performance criteria described above, the screen was limited to funds with managers who have been on the job at least three years; asset bases of less than $1 billion but more than $30 million; turnover and annual expense ratios below the fund’s category average; and minimum initial purchase requirements of $10,000 or less.
Some investors believe that funds with smaller asset bases give the fund manager more flexibility, and that low portfolio turnover rates and lower annual costs both boost performance in the long run.
Of course, passing a simple screen doesn’t guarantee that a fund will do well in the future. As with any stock or fund screen, investors should do their own research on any fund.
That said, here’s a quick look at some of the funds that made the screen:
* The $104-million Alger MidCap Growth Fund, managed by David D. Alger, stays true to its name, with about four-fifths of its holdings in medium-size stocks (those with market capitalizations between $1 billion and $5 billion), according to Morningstar.
Overweighting energy stocks, one of 2000’s bright sectors, and underweighting technology paid off as the fund gained 12.9% last year.
* The $140-million Meridian Fund, managed by Richard F. Aster since its inception in 1984, has steered fairly clear of tech stocks because of their steep valuations, Morningstar notes. That hurt in 1998 and ‘99, when the fund returned 3.1% and 13.3%, respectively, eating the bull market’s dust.
But Aster’s steadfast conservative approach was rewarded in 2000, when longtime major holdings Kohl’s (ticker symbol: KSS), the discount retailer, and Paychex (PAYX), the payroll services provider, both surged.
* The $643-million Dreyfus New Leaders fund, managed by Paul Kandel and Hilary R. Woods, started as a small-cap portfolio but now favors medium-size stocks as its assets have grown.
Kandel and Woods have rung up bigger returns at Dreyfus Emerging Leaders, Morningstar notes, but that fund is closed to new investors. Though it may not be as flashy, New Leaders’ return of 8.6% in 2000 landed it in the top quartile of the mid-cap growth fund category for the third straight year. Kandel and Woods use a flexible approach, holding some value stocks as well as growth names.
* One reason the $31-million Icon Information Technology fund, managed by Craig Callahan, beat 98% of its sector-fund peers last year is its relatively low-key style--and its ability to mix in non-tech stocks. Callahan lightened up on tech in the first quarter, selling pricey names, and steered clear of “dot-coms” entirely. His bets on smaller banks and generic drug companies paid off.
At Sept. 30 the fund owned such tech names as Tellabs (TLAB) and Arrow Electronics (ARW). In a recent interview with Bloomberg News, Callahan said that although tech is starting to look attractive again from a valuation stance, he will wait for the stocks to show price strength before buying.
For now, he said, health care, financial services and some leisure and consumer goods stocks continue to lead their own “stealth” bull market.
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Consistent Growth Funds
These 11 growth or technology stock mutual funds passed a Times screen for performance consistency in recent years, including a difficult 2000. Funds with high (or very low) asset levels, high expense ratios, high turnover ratios or high initial purchase requirements were screened out, as were funds with short manager tenures.
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Fund name Morningstar Total return 800 category 2000 3-yr (ann.) number Icon Info. Tech (ST) +14.1% +48.7% 764-0442 Sit Sm. Cap. Gro. (MG) +6.3 +32.5 332-5580 Brown Cap. Sm. Co. (SG) +15.3 +26.8 525-3863 Alger MidCap Gro. (MG) +12.9 +25.5 992-3863 Wasatch Sm. Cap. Gro. (SG) +16.8 +23.4 551-1700 Advance Cap. Equ. (MG) +7.1 +22.9 345-4783 Galaxy Gro. II (MG) +0.1 +20.9 628-0414 Aquinas Growth (LG) +2.5 +16.7 423-6369 Meridian (SG) +28.2 +15.6 446-6662 Dreyf. New Leaders (MG) +8.6 +14.0 373-9387 Johnson Opport. (MG) +6.1 +12.6 541-0170 S&P; 500 index -9.1 +12.3 *
Categories: ST=specialty-technology; LG=large growth; MG=mid-cap growth; SG=small-cap growth
Source: Morningstar Inc.
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