TAKING STOCK: Smaller mutual funds


Dear Mr. Berko:

I have $85,000 to invest for pure growth for my 4-year-old granddaughter. I want to buy five to seven no-load mutual funds with small portfolios-ones containing about 40 individual issues. I have been reading you for 31 years. Your help would be appreciated.

-WP, Cleveland

Dear WP:

This is a tough question. So I had to ask a brilliant and sometimes modestly successful fund manager who prefers the nom de plume Cecil D. Michaelpants for his recommendations.

Cecil's first pick was the barely known Parnassus Endeavor Fund (PARWX-$30.03). Its $1.2 billion growth portfolio is run by Jerome Dodson. PARWX invests in companies that provide superior work environments for employees. Dodson believes that companies with excellent work environments can recruit and train employees who will perform at higher levels of productivity, motivation and loyalty than their competitors. This five-star fund-which owns companies such as Altera, Perrigo and W.W. Grainger-has one-, three-, five- and 10-year total returns of 4.13 percent, 15.43 percent, 14.84 percent and 11.2 percent, respectively. PARWX has 36 issues in its portfolio.

His second pick is the $2.04 billion Ariel Appreciation Fund Investor Class (CAAPX-$49.91), run by John Rogers, whose investment style imitates Warren Buffett's. He seeks superbly managed companies with strong brand recognition and heavy cash flows. This four-star fund owns issues with which you may not be familiar, including Bristow Group, Kennametal and Lazard. Rogers has produced one-, three-, five- and 10-year total returns of minus 3.89 percent, 13.15 percent, 11.92 and 7.22 percent, respectively. There are 38 issues in CAAPX's portfolio.

Janus Forty Fund Class R (JDCRX-$30.22) is part of the multibillion-dollar Janus Capital Group, a huge and well-known fund family that's been managing money for generations. And Cecil seems to have an abiding affection for Douglas Rao, who has been the fund's manager for a bit over two years. JDCRX is a pure growth fund that invests in companies of any size, from large established corporations to smaller emerging-growth companies. This three-star fund has such issues as Valeant Pharmaceuticals International, Endo International and Zoetis in its portfolio, and the one-, three-, five- and 10-year total returns are 10.47 percent, 13.93 percent, 12.79 percent and 7.89 percent, respectively.

There are probably fewer than 943 investors who are familiar with the $1.1 billion portfolio of the Homestead Small-Company Stock Fund (HSCSX-$37.69), which has been among Michaelpants' best-liked small-cap funds since last year. Some say that Cecil is stuck on Prabha Carpenter, who has been running this fund since May 2014. Ms. Carpenter's 37-stock portfolio owns issues such as Werner Enterprises, Francesca's Holdings and Encore Capital Group, which are regarded as highly undervalued stocks. This five-star portfolio's one-, three-, five- and 10-year total returns are 3.4 percent, 13.29 percent, 14.26 percent and 9.95 percent, respectively.

Hennessy Focus Fund (HFCSX-$68.73) only owns 24 stocks in its four-star, $1.7 billion portfolio, which is usually fairly cash-heavy. Cecil has great regard for the two co-managers, who are constantly looking for highly undervalued growth issues with predictable long-term earnings. HFCSX owns such interesting equities as Twenty-First Century Fox, Markel Corp. and Brookfield Asset Management, which have allowed the co-managers to produce one-, three-, five- and 10-year total returns of 9.42 percent, 16.43 percent, 15.11 percent and 10.31 percent. However, HFCSX's operating expenses are comparatively top-heavy.

Baron Partners Fund (BPTRX-$35.64), even with its heavy fees, is one of Cecil Michaelpants' favorite mid-cap growth funds. BPTRX aggressively searches for fast-growing, innovative companies that Ron Baron, who founded the fund in 1992, believes can double their share prices in five years. Ron's 28-stock portfolio owns names such as FactSet Research Systems, Mobileye and Illumina. The $2.1 billion four-star portfolio has one-, three-, five- and 10-year total returns of minus 0.28 percent, 16.51 percent, 14.77 percent and 8.13 percent.

And finally, Mr. Michaelpants' seventh mutual fund pick is the almost unknown Brown Advisory Growth Equity Fund (BIAGX-$19.85), with only 33 stocks in its four-star, $2.3 billion portfolio. Ken Stuzin, who manages BIAGX, searches for companies-e.g., Apple, Starbucks and Amazon.com-with annualized earnings growth of 10 percent or better that can double every decade. The one-, three-, five- and 10-year returns are 4.24 percent, 10.4 percent, 11.77 percent and 8.64 percent.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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Published: Tue, Oct 13, 2015