Hidden Gems Among Our Analyst Picks
These small-fry wonders are flying under the radar but can complement your portfolio nicely.
When it comes to mutual funds, small can be beautiful. There are distinct advantages when a fund has a small asset base: Managers can be nimble, deploying their investment ideas and strategies with more agility than their heavyweight peers. They can also pick up smaller-cap stocks without influencing the prices, even when they're accumulating meaningful position sizes, thereby reducing the drag of market-impact costs.
To help us fish for some first-rate petite names, we turned to the Premium Fund Screener. We quickly homed in on high-quality funds by screening for Fund Analyst Picks--investments that our in-house fund analyst team considers the cream of the crop in the mutual fund universe. To filter for the tiniest of those, we eliminated funds with more than $500 million of assets under management. We then kicked out all institutional funds, which allowed for a narrowed-down selection. Note that several of these offerings emphasize small- and mid-cap stocks, which have enjoyed red-hot performance since the market bottomed in early 2009 and might be due for a cool-down at some point. Nonetheless, we think the following three offerings are worthy supporting-player funds to augment an investor's core large-cap exposure. Click here to replicate this screen.
Bogle Small Cap Growth Investor (BOGLX)
Although the fund's bear-market showing was abysmal, there's still a lot to like about this tiny fund. Manager John Bogle Jr. employs quant screens that focus on a variety of factors such as a company's balance sheet, accounting practices, and the potential for upward earnings revisions. He's not likely to stray too far from the Russell 2000 Growth index's sector weightings but strives to beat it via stock selection. A disciplined application of that strategy has helped the fund beat 75% of its category peers and handily outpace the Russell 2000 Index since its 1999 inception. This offering also has a history of closing its doors to new investors to maintain its small asset base. Moreover, we like that Bogle eats his own cooking; he has more than a $1 million of his own money invested in the fund, helping align his incentives with shareholders'.
Esther Pak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.