Little funds that are big on growth

The Baltimore Sun

Big-name mutual funds often attract lots of attention, but some fine performing, lesser-known funds also are worthy of investors' consideration.

These funds don't have heavily advertised marquee names, are relatively small and haven't been around forever. But those are among their virtues.

The people running them have had success. We're not saying you'll be getting in on the ground floor of the next Fidelity Magellan, but they are worth a look.

All are "no-load," meaning they require no initial sales charge.

Take the $327 million Manning & Napier Fund Inc. Pro-Blend Maximum Term Series, for example. Its name doesn't roll off your tongue, but it has a three-year annualized return of 13 percent that ranks in the top 5 percent of Morningstar Inc.'s large growth and value category.

"Because the fund isn't very large, we have the flexibility to buy small- and mid-size stocks and take positions in them without having to do anything like sit on their boards," said Jeffrey Coons, one of that 11-year-old fund's managers.

At its investment firm, Manning & Napier Advisors Inc. in Fairport, N.Y., 40 research analysts invest in U.S. and foreign companies that don't have to fit neatly into style boxes such as small- or mid-cap, value or growth.

"Our analysts can spend all their time focused on investing without having to worry about all the aspects of being well-known and being pulled out for that," Coons said.

Largest holdings include Unilever PLC, EMC Corp., Novartis AG, Time Warner Inc. and U.S. Treasury bonds. It requires a $2,000 minimum initial investment and has a 1.20 percent annual expense ratio.

Some funds are small because they never did well enough to grow, but others offer opportunity to get in early on something good.

"Ideally, you want to find a fund manager with a good track record at another fund, not just a flash in the pan," said Russel Kinnel, director of fund analysis for Morningstar in Chicago.

"Look for a track record that shows a sound approach and low cost, which is sometimes hard to find in a small, newish fund."

For example, Kinnel likes the $218 million Schneider Value Fund, launched in 2002 and run by Arnie Schneider III, a deep-value manager who ably ran a team at Wellington Management Co.

Digging into financial filings to target distressed companies, Schneider Value has a three-year annualized return of 15 percent. Largest holdings are Reliant Energy Inc., Fannie Mae and Countrywide Financial Corp. It has a low 0.85 percent annual expense ratio, but hefty $20,000 minimum.

Another Kinnel favorite flying under the radar, the $159 million Primecap Odyssey Aggressive Growth Fund, has a one-year return of 16 percent.

Its aggressive management team - Theo Kolokotrones, Joel Fried, Alfred Mordecai and Howard Schow - was selected as Morningstar's Domestic Stock Manager of the Year for 2003 before it took on this fund the following year.

Top holdings are Affymetrix Inc., ASML Holding NV and Sepracor Inc. It has a $2,000 minimum and 1.25 percent expense ratio.

Small funds with experienced managers also pop up at megafund firms.

The $426 million T. Rowe Price Global Stock has been run by fundamental growth investor Robert Gensler for a year and a half. He previously excelled at T. Rowe Price Media & Telecommunications Fund, Kinnel said.

Gensler's current fund has a three-year annualized return of 20 percent.

Top holdings are American Tower Corp. Class A shares, Monster Worldwide Inc. and Juniper Networks Inc. It has a $2,500 minimum and 1.18 percent expense ratio.

The $2.5 billion Vanguard Primecap Core Fund, with a one-year return of 11 percent, is run by the same team as Primecap Odyssey Aggressive Growth. Largest holdings are Eli Lilly & Co., Novartis AG and Medtronic Inc. It has a 0.60 percent expense ratio and $10,000 minimum.

"Vanguard Primecap Core Fund is run by guys who have had a stunning record of success," said Daniel Wiener, editor of the Independent Advisor for Vanguard Investors in Brooklyn, N.Y.

Many lesser-known funds benefit from their small size.

"When a portfolio manager starts getting many millions of dollars in a fund's coffers, he pretty much must spend it on large-cap stocks," said Thurman Smith, editor of the Equity Fund Outlook newsletter in Boston, who recommends Manning & Napier Pro-Blend Maximum Term. "Smaller size means you can be more flexible."

Smith likes the $113 million Artisan Opportunistic Value Fund, which doesn't yet have a one-year return but does have experienced management in charge. Largest holdings are Nike Inc. Class B shares, Wal-Mart Stores Inc. and Apache Corp. It requires a $1,000 minimum.

Andrew Leckey writes for Tribune Media Services.

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