One Fund on Small-Cap Frontier ...
Day after day the top guns of the best small companies in the United States beat a path to Arsen Mrakovic's Manhattan door.
"Two to three companies come every day; sometimes five or more," he says. Their goal? To have their stocks snapped up by Mr. Mrakovic's small-cap fund, the J.&W. Seligman Frontier Fund.
Unlike many fund managers, Mrakovic and his team insist on personally meeting with officers of every company the fund invests in.
Frontier, with a front-end load of 4.75 percent, is up about 25 percent this year, through Oct. 6 (800-221-2783; minimum regular or IRA investment $1,000).
Since it opened in 1992, the fund has consistently beaten the Lipper index of small-company growth funds. It has a three-star (average) rating from Morningstar, which factors share-price volatility into its ratings.
With so many small-cap funds competing for investor dollars, it is not easy to find overlooked companies. Fortunately, says Mrakovic, "there are now more small-cap companies than ever," as more fledgling firms and spinoffs come to market.
Frontier tracks a small-cap universe of 4,000 to 5,000 firms. That list is pared down to 500 candidates. Then come the face-to-face meetings. One key test is cash flow. If a firm has a solid stream of cash, "that's a sign of future growth," he says.
The portfolio ends up with 130 firms.
Mrakovic is upbeat. He believes the fourth quarter of 1997 should be solid for small caps, followed by a good year in 1998. In fact, he says that with small caps priced attractively compared with big companies, they are ready for a sustained comeback.
One of these years, whether 1998 or thereafter, he says small-cap growth stocks are going to "shoot the lights out" in terms of total returns.
Mrakovic will be ready.
... And Some Others Worth a Look
WITH 1,000 small- and mid-cap funds to choose from, investors have homework to do.
And when you do find a good fund, it sometimes ends up being closed to new investors. Two excellent funds that recently shut their doors are NI MicroCap and Oakmark Small Cap. Here are some funds that experts see as solid performers that are still open. Of course, past returns don't ensure future gains.
Fidelity TechnoQuant Growth (800-544-3902; minimum investment: $2,500, $500 for IRAs) is not a mid-cap fund by objective, but its median company size, at $3.2 billion, puts it in the high end of this sector. The fund picks stocks using quantitative measures, such as their historical price movements. The fund, up 32 percent through Oct. 6, has outperformed the Fidelity Mid Cap Fund, at 28 percent. But experts are divided. Fidelity tracker Eric Kobren likes Fidelity Mid Cap instead.
Franklin Small Cap Growth I (800-342-5236; minimum investment, $100, with no minimum for IRAs) is up 28 percent through Oct. 6. Low entry fees make it attractive for investors of modest means. Its style is a blend of value and growth investing, with a strong bent towards technology. It has been less volatile than peers, which adds downside protection.
Kaufmann (800-261-0555; minimum investment: $1,500, or $500 for IRAs) is perhaps the best-known small-cap fund. An aggressive-growth fund, it languished earlier this year, declining in the first quarter. Now it's up 21 percent through Oct. 6. Is it back on track? Time will tell. It has beaten peers in past down markets. Aggressive-growth funds, however, are volatile.
Parnassus (800-999-3505; minimum investment $2,000, or $500 for IRAs) is up 49 percent through Oct. 6, and buys small- and mid-size companies. What sets it apart: It's a "socially responsible" fund. It shuns firms linked to liquor, tobacco, gambling, or nuclear power. It looks for stocks that are depressed in price but have room to grow. In past downturns the fund has outperformed peers. Sales charge: 3.5 percent.
Yacktman (800-525-8258; minimum $2,500, $500 for IRAs.) is a relatively conservative mid-cap value fund, up 23 percent through Oct. 6. Manager Donald Yacktman likes a small, manageable portfolio: 35 holdings at present.