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HighMark Small Cap Value Just Keeps Lagging

HighMark Small Cap Value's unconventional approach isn't paying off.


Small-value funds have been one of the only bright spots of 2001's market. But even favorable market conditions haven't lifted HighMark Small Cap Value Fund (HMSCX) out of the doldrums. The fund finished 2000 with a 2.1% return, landing the fund near the bottom of the category. And so far in 2001, the story hasn't gotten much better; it has lost about 4% through March 21, and lands in its group's bottom third. 

Much of the fund's slide in 2000 came from the performance of the fund's tech stocks. An oversized tech weighting bolstered the fund in 1999 and early in 2000, but it helped decimate the fund's returns when the Nasdaq tanked later in the year. Manager Elizabeth Pearce slashed the tech weighting late in the year, but the damage was already done; holdings like Take-Two Interactive Software (TTWO) and Somera Communications (SWO) stung. As many tech shares have been battered so far in 2001, Pearce says she's looking for a time to add in the sector, but she believes tech may still have a ways to fall before it hits bottom. Meanwhile, she has added to utilities that are posting solid earnings growth, like CMS Energy (CMS). Pearce also likes CMS because it is selling off its noncore businesses and is focusing on its electric and gas operations. As a sidenote, Pearce also recently doubled her position in World Wrestling Federation (WWF), because she thinks the publicity surrounding its new XFL football league will lead to strong revenue from advertisers.

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Catherine Hickey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.