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Two Tiny Funds That Deserve More Attention

There's no reason that these offerings should go unnoticed.

Gregg Wolper, 04/21/2009

Many of you are not particularly happy with your funds these days. Are you looking for others? Plenty of prominent funds could serve your purpose. But you probably already know about those. And in some cases a prominent fund may be the disappointing performer you're trying to replace.

So here we present two funds you almost certainly don't own. How do we know? Because the two have a combined total of just $66 million in their coffers--a pittance in the mutual fund world. One is young, the other is 16 years old, but both have very experienced management.

There's no reason for either to be so overlooked, yet that adds to their attraction right now. Small funds have more flexibility than their bigger counterparts. They can typically buy or sell as many shares as they want of a company, even a fairly small one, without moving that stock's price much, or at all. It's also easier for them to completely unload a firm's shares when they deem it necessary.

Of course, smaller funds don't have broad shareholder bases over which to spread out their business costs, so they tend to be more expensive. But there's a chance the cost for shareholders will drop with just a fairly modest growth in assets. The increase in assets isn't guaranteed, nor is it assured that the expense ratio will drop as much as it should. But that process does frequently play out.

The funds below aren't perfect. Investigate and evaluate them carefully before deciding if they're right for you. But they have enough appeal to merit getting into the conversation; if you don't even know about them, they can't even get that far.

UMB Scout International Discovery UMBDX
Manager James Moffett has been running UMB Scout International UMBWX with tremendous success since 1993. (He's been joined by comanagers in recent years). Although Moffett has always had a fondness for medium-size companies, that fund's overall portfolio usually lands firmly in large-cap territory. Its current average market capitalization is about $20 billion, right around the norm for the foreign large-cap categories. That's appropriate, because the fund is intended to serve as a shareholder's core international fund. But there are some opportunities among small and midsize companies that the fund's managers don't pursue, or at least not to the extent they might otherwise wish to do.

Enter UMB Scout International Discovery, created at the end of 2007. This fund focuses more on midsize companies than its older sibling does, with small caps also included in its purview (along with some larger firms). Its average market cap is below $5 billion--less than one fourth the size of its older sibling's portfolio. But it does share its sibling's very patient approach. Moffett and comanager Michael Stack tend to hold on to what they buy; this fund's turnover rate was a meager 7% in the second half of 2008.PAGEBREAK

This fund doesn't have to worry about getting too bulky. In fact, it had a mere $10.5 million in assets as of the middle of last week. That's not enough to pay the bills. Its expense ratio would have been 3.40% for the second half of 2008 had the advisor not waived much of that, resulting in an expense ratio for shareholders of 1.60%. Even after the waiver, that cost isn't cheap by any means, but the other funds at this shop are quite reasonably priced, so there's a good chance that with just a decent amount of assets this fund's cost would fall to a much more palatable level. Meanwhile, that minimal turnover rate does keep down trading costs.

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