(Page Two of Microcap fund article)
The fact that so many institutional investors ignore the micro-cap
sector intrigued Peter Sidoti, who formed NatWest's micro-cap research
group, last spring. Mr. Sidoti says he seized the opportunity to get
in on the ground floor of an apparent investment wave.
"We became very frustrated with people telling us that they wouldn't
look at stocks with market caps under $500 million," Mr. Sidoti says.
"There's a whole new source of research ideas in the marketplace to be
mined."
NatWest's micro-cap research group began making recommendations on 28
micro-cap stocks, including Lifeline Systems, Innovex, Jabil Circuit
and Caretenders Health in October. Mr. Sitodi expects to have at
least 12 analysts tracking micro-cap companies by the end of January.
In addition, NatWest, a unit of National Westminster Bank, is
considering setting up micro-cap units in Europe and Australia, he
says.
"When you look at all the different things micro-caps do, you really
get a good idea what's going on in the business world. You get to see
how a little piece of a major conglomerate will work," Mr. Sidoti
says.
But micro-cap investing has drawbacks. Many of the companies
discovered by micro-cap portfolio managers are unknown to the
investment community at large, so it can be hard to buy or sell stocks
at any price in a hurry.
Such challenges only excite micro-cap junkies. Says Mark Westman,
manager of the Portico Micro-cap Fund: "When you are changing a
position, a lack of liquidity is very bad. But when you are holding a
micro-cap stock and somebody else is buying it, it's a wonderful
thing."
Robert Kern, a micro-cap manager at Morgan Grenfell Asset Management,
is perhaps the biggest of micro-cap cheerleaders. "Certainly the best
opportunities exist within the micro-cap universe," Mr. Kern argues,
noting that roughly 4,400 companies with market capitalizations
ranging from $10 million to $288 million can be classified as
micro-caps. By contrast, about 1,500 companies fit into the small-cap
realm - they have market caps of $289 million to $1.8 billion.
Mr. Kern manages the $120 million Fremont U. S. Micro-Cap Fund, up
45.3% in 1996. He currently tracks 38 mutual funds, including his
own, that have micro-cap-like objectives. According to Lipper, 32 of
those funds are up 21.9% on average in 1996.
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There is plenty of additional info on small cap funds on the Web such
as financial.spiders.com.
Regards, Charles |
