by Bill Wysor | December 19, 2013 10:26 am
The holiday season is a time of year during which many of us open up our hearts and homes and reconnect with friends and family. However, there’s quite a Scrooge-like attitude coming from the mutual fund world when it comes to investors looking for a way to play the sizzling small-cap class.
Many high-quality funds are closed to new investors. Fund favorites like Fidelity Small-Cap Discovery (FSCRX), Fidelity Small-Cap Value (FCPVX) and Artisan Small Cap (ARTSX) are all off-limits to new investors. T. Rowe Price New Horizons (PRNHX) will be closed to new investors effective Dec. 31. It’s a welcome problem — these funds’ assets have grown uncomfortably large thanks to both new money coming in and existing stocks being bid up in price.
Still, a few small-cap mutual funds are willing to greet new fund investors, and they’re very much worth considering. After all, mutual funds offer a smart way for investors to capture the potential explosive growth in small company stocks while avoiding the pitfalls of picking and monitoring these lesser-known names.
Here are three compelling no-load mutual funds that are open to new investors:
T. Rowe Price Diversified Small-Cap Growth (PRDSX) is simply not your average fund that uses a quantitative approach.
Manager Sudhir Nanda manages a fund that holds around 300 stocks and trades infrequently — turnover is just 15% annually. PRDSX also does not use a momentum-based strategy to pick holdings. Fundamental analysis is incorporated with quantitative (computer) models to determine the direction of the portfolio.
Currently, 22% of the fund is invested in technology names and 19% of the portfolio lies in the healthcare sector. Recent top holdings include 3D Systems (DDD), Boston Beer Co. (SAM), Incyte (INCY), Maximus (MMS) and Middleby (MIDD).
The results are working on this $709 million fund — PRDSX is up 39.2% YTD, which places the fund in the top 23% of mutual funds in its Morningstar category. And during the past five years, this T. Rowe Price fund has advanced at an annualized 25.6% clip, which places it in the top 11% of all small-growth funds.
Expenses run a reasonable 0.91%, or $91 for every $10,000 invested.
Also featuring a quantitative approach, American Century Small Company (ASQIX) is moving in a positive direction.
Managers Brian Garbe and Tal Sansani have been on this $330 million fund since 2010, and fund performance has improved over the period. Year-to-date, ASQIX is up 38.4%, good enough to place it in the top 12% of mutual funds in its Morningstar category.
ASQIX mixes growth names in with value stocks for a blend that has worked quite well. Microcap stocks account for 33% of the fund, helping to add potential for explosive growth. Still, topping its 320 holdings are companies on the larger side of “small cap,” including EnerSys (ENS), Questcor Pharmaceuticals (QCOR), RLJ Lodging Trust (RLJ), Euronet Worldwide (EEFT) and Louisiana-Pacific (LPX). None are weighted more than 0.72%, making this American Century fund a very balanced offering.
However, ASQIX does have a fairly high turnover ratio of 93%. Meanwhile, expenses run 0.88% annually.
Grandeur Peak Global Reach (GPROX) gives investors an opportunity to access a new fund with an experienced, successful stock-picking team focused on global small-cap opportunities.
Robert Gardiner and Blake Walker started their own firm after successfully picking small-cap stocks for Wasatch. However, Grandeur has the tendency to close its funds fairly early on as assets build. The now-closed Granduer Peak Global Opportunities (GPGOX) is up a solid 33.9% YTD, ranking it in the top 6% of its Morningstar category.
But GPROX, which commenced operation in June, still is open for business, and it’s off to a fine start — the fund is up 5.7% during the past three months and 17% since inception, though it has just $56 million in assets. The plan is for this portfolio to eventually consist of 300 to 500 micro- and small-cap companies throughout the world.
Currently, 33% of the portfolio is invested in North America and 31% in Asia (ex-Japan). In terms of sector weighting, industrial names are 23% of the portfolio followed by 21% in the technology space. Recent top holdings include: Magellan Financial Group, Clinigen Group PLC, iMarketKorea, Hy-Lok and China Medical.
Expenses run an expensive 1.81%.
As of this writing, Bill Wysor was long FCPVX and GPGOX.
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