Can ‘Hidden’ Funds Beat the Bear Market?
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Editor’s Note: The Dow Jones Industrial Average index hit a year low today. It was led by a 10% slump in shares of General Motors (GM) after Goldman Sachs issued a ’sell’ rating.
The S&P 500 and Nasdaq indexes also had a bad day, falling 1.9% and 2.2% respectively.
Jim Nelson from Penny Sleuth thinks that investors can still find positive returns in the bear market. They just need to look at more obscure small-cap funds…
Finding Diamonds in the Rough… Market
By Jim Nelson
So far this year, the market has been pretty unfriendly to everyone. Unless you are running an energy or commodities fund, you are probably in the red thus far.
Just take a look at what the market here in the U.S. has been up to YTD:
As you can see the Dow Jones Industrial Average (black) is down double digits, followed closely by the NASDAQ Composite (blue) and the S&P 500 (gold). But those represent mostly large companies. What about the small companies?
Well they aren’t faring as bad, but still not good:
Above is the Russell 2000 Index, which is the best indicator we have for how small-cap stocks perform. That decline represents about a 2.5% loss on the year.
Pretty unsatisfying, huh?
But, I knew there has to be someone doing better… So, I quickly ran a screen to see who they are…
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Using a quick small-cap mutual fund screen, I stumbled upon a few. First up is Integrity Small-Cap Growth Fund (ICPAX: NASDAQ). So far in 2008, the crew over at Integrity have been able to manage a return of more than 7%, which is quite a praiseworthy accomplishment in this market.
Integrity isn’t doing anything too special. The majority of its holdings are in “business services,” “hardware,” and “healthcare” — all of which have been beaten up this year. They are simply picking great companies like Energy Conversion Devices, Inc. (NASDAQ: ENER), which is up 141% so far this year.
That’s what I like to see in a fund…a portfolio manager that simply picks great small companies to invest in. In fact, the guy in charge of this fund, Robert Loest, was the mastermind behind the 120% return IPS Millennium Fund posted back in 1999.
I’m not saying you should go out and invest in this fund. The fund itself is very risky. With its size (about $2 million worth of assets), and no cash allocated for future investment, it’s not in the best position to take advantage of a great investment if one comes along.
The second fund that caught my eye was the Transamerica Premier Institutional Small-Cap Value Fund (NASDAQ: TPSMX). I know, it’s a mouthful…but it’s also up 7% this year. So let’s take a look…
The first thing that caught my eye was its concentration. This is also another equities-only fund. About 36% of all its investments are in the “business services” field. But what really gets me about this fund is its next two concentrations…
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About 20% of its assets are in “financial services” and another 20% are in energy stocks. In my eyes, those two cancel each other out. The “financial services” sector is not the place I’d be putting my money. Just look at Bear Stearns, Lehman Brothers (NYSE: LEH), Citigroup (NYSE: C)… The list goes on and on… Energy, however, is a great place to be. Stocks in that sector are up an average of 6% with many upward of triple digits.
Unfortunately, the average investor can’t put his money in Transamerica. At least not this fund. It’s for institutional investors only. But it still gives us an idea of what the lucky few are buying.
While neither of these funds are household names, sometimes that’s the place to be. We always keep our eyes on what these hidden funds are buying, and so should you. It might just lead to the next great find…
Source: Finding Diamonds in the Rough…Market
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Tags: bear market, Bear Stearns, C, Downturn Strategy, ENER, Jim Neltson, LEH, Nasdaq, TPSMX, US stocksAbout the Author
Jim Nelson is the managing editor of Penny Sleuth, a daily small-cap e-letter with more than 160,000 subscribers. Jim has been playing the stock market since he was 14, always with a preference toward smaller companies.
The Penny Sleuth is free e-letter from Tom Bulford who shares his innermost thoughts, stories, projections and opiniosn on the UK's most exciting share market. Each issue reveal what every investor ought to know before investing in the small-cap market.