| NEW YORK, June 11
NEW YORK, June 11 For U.S. mutual fund
investors, this is shaping up to be a year when it pays to go
In what mutual fund experts call a rarity, tiny funds with
less than $100 million in assets under management are either
leading or are among the top three or four best performers in
every major U.S. stock category tracked by Morningstar for the
year through June 10.
The outperformance of miniscule funds run by managers that
few investors have ever heard of likely reflects the fact that,
as passive investing in index funds and exchange traded funds
becomes more popular, fund managers with few assets are taking
concentrated bets on only a handful of stocks in order to stand
out. When all goes well, that can lead to strong
outperformance even after a small fund's higher-than-average
fees; when it does not, those funds are likely to fall among the
At the same time, stock pickers tend to reap the biggest
rewards in the later stages of a bull market, when rallies are
Each of the small funds leading their categories this year
have 30 or fewer stocks in their portfolio. The $25 million
Biondo Focus fund, for instance, has gained 9.8
percent for the year with its portfolio of 19 stocks, trailing
only two other funds among the 1,743 in the Morningstar
large-cap growth category. Its top holdings include a 14 percent
stake in JPMorgan Chase & Co, a 12 percent in Pacira
Pharmaceuticals Inc, and 10.3 percent in Gilead
By comparison, Fidelity's $107.5 billion Contrafund
, a mainstay of retirement accounts, holds no more than
4.5 percent in any one of its 298 holdings. The fund is up 3.4
percent for the year, putting it in the 57th percentile of the
large growth category. Over the last three years, however,
Contrafund has returned an average of 17.1 percent a year, while
the Biondo fund has gained an average of 13.5 percent over the
same time frame.
"When you are running a concentrated fund, you are taking
greater risk opportunity for greater reward. If you pick the
right stocks your winners are going to shine," said Todd
Rosenbluth, director of mutual fund research at S&P CapitalIQ.
Picking only a handful of stocks tends to work better in the
United States than in the emerging markets or Europe, Rosenbluth
added, where a fund manager has to be right on not only a
company, but on the performance of its country as well.
Internationally, large funds by giants like Fidelity and T. Rowe
Price Group Inc are leading the pack in categories
ranging from emerging market stocks to European equities.
The managers of small funds, for their part, cite some
advantages to their size. Brian Boyle, the lead portfolio
manager of the $21 million Valley Forge Fund, whose
19.9 percent gain for the year leads all other large value
funds, said he can be more nimble than the other 1,290
competitors in his category.
He has been able to build up nearly 10 percent of his
portfolio in oil and gas company Birchliff Energy Ltd
even when just 5,000 shares of its stock change hands each day
on average, he said, a position that a larger fund could not do
without becoming a significant owner of the shares. The stock is
up 91 percent for the year.
"At some point there could be a constraint in terms of fund
size, but we're nowhere near it," he said.
(Reporting by David Randall; Editing by Linda Stern and Richard