Tamson,
The fund manager and the Fremont funds you refer to in
your post regarding micro cap stocks and secondaries, was also in a post here (by Ron Endres) of two weeks ago. Kerm than
said Emulex was his biggest winner in the 2nd qtr, and
Ancor was also a large gain:
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To: +trendmastr (23074 )
From: +Ron Endres
Monday, Jun 28 1999 5:59PM ET
Reply # of 23261
I just saw this article about a microcap fund manager who had success buying ANCR.
'Microcap' Doesn't Mean Microscopic Returns: Personal Funds
'Microcap' Doesn't Mean Microscopic Returns: Personal Funds
New York, June 23 (Bloomberg) -- Just because Robert Kern invests in ''microcap'' stocks,
that doesn't mean he can't post big returns for his investors.
Kern's $225 million Fremont U.S. Micro-Cap Fund ranked No. 11 of 613 ''small-cap'' funds,
rising 27.71 percent so far this year, according to Bloomberg Fund Performance. ''We want
to find companies that are going to be in the forefront of innovation,'' said Kern, 63. ''In
micro-cap investing, it's difficult to be a 'me-too' investor.''
The fund manager said he wants to purchase shares of ''growth stocks,'' meaning those
which are expected to advance rapidly because they can take advantage of a new technology
or sell products or services that are in vogue.
Kern seeks to invest in companies which have market values of $10 million to $550 million.
In today's investment climate, that range is indeed microscopic since the average market
capitalization of the stocks in the Russell 2000 Index of small- cap stocks is $592 million.
Microcap investing is not as visible as large-cap investing because most of the companies
held by these funds lack the familiarity of large companies. ''Plus, we've been in a challenging
period for the microcap level, compared to big-company stocks,'' Kern said. ''The media
haven't been paying attention to us.''
Following are six criteria to help investors determine whether this fund suits their needs.
Contents
Kern searches for companies that can give him an edge in the stock market. ''We want to
find companies that are innovating in a newer technology, such as Internet security,'' he said.
''When you're involved in a e-commerce, when people are doing their transactions, security
is going to be very important.''
Information Resource Engineering Inc., for example, is one of his biggest holdings. The
Baltimore-based company is in the business of making security systems that safeguard
corporate networks and keep hackers from hurting their systems. Its shares are up 232
percent in the past 12 months.
The fund's largest holding is Emulex Corp., whose stock has gained 1,433 percent in the past
year. It designs and develops a line of fiber channel adapters to help users store electronic
information and applications. Ancor Communications Inc., which develops fiber channel
network products, has risen 529 percent in the past year.
Kern said his favorite industries now are technology, health care, consumer products and
services.
More than 5,000 companies are in the fund's universe, with the vast majority located in the
U.S., Kern said. ''That means we have plenty of opportunities for investments.''
The fund owns 70 stocks. Every stock Kern buys for the fund is in the microcap-market
range, though the stocks occasionally rise into the small-cap group, where companies may
have market values of as much as $1 billion. ''We want to see what the vision of a
company's leader is and where the company sees opportunities,'' Kern said. ''It comes down
to, How are you focusing your company's resources to achieve that vision.''
Risks
Even though Kern has outpaced the competition, he has no illusions about the precarious
nature of investing money in small companies, which will never be confused with big
household names like Microsoft Corp. ''There are risks,'' he said, ''because the volatility tends
to be higher in microcap investing than in other kinds of investing. The level of volatility is
the primary concern.''
Performance
Kern's $225 million Fremont U.S. Microcap Fund has posted a return of 33 percent in the
past 12 months. Not only does that figure trounce the puny 1 percent return of the
small-company Russell 2000 Index of stocks, it tops the 23 percent performance of the
benchmark Standard & Poor's 500 Index.
The fund can be volatile. It rose 7 percent in 1997 and gained 3 percent in 1998. ''In 1997,
we had a tough year because we were too cautious in the late spring in not seeing the upside
in the technology side,' Kern said. ''We weren't willing to pay up for some of the good
companies whose prices had gone up and the stocks just kept going up,'' Kern said.
''Valuation sensitivity sometimes doesn't benefit your performance.''
The fund was a victim of a bad market in 1998. ''It was the second-worst third-quarter --
next to the 1987 crash period -- I can remember,'' he said. ''Gaining 3 percent for the year
was a major achievement.''
Leadership
Kern has managed the fund since its inception five years from his base in New York. He is
co-founder of Kern Capital Management which acts as sub-adviser for Fremont Investment
Advisors which markets the fund. Previously, he served as a managing director with Morgan
Grenfell. He graduated from Purdue University in 1960 with a degree in mechanical
engineering. He works closely with his son, David Kern, the management company's other
co-founder. David manages the Fremont U.S. Small-Cap Fund.
Costs and Taxes
Robert Kern's micro-cap fund paid no capital gains last year, he said. The fund's expense
ratio is 1.94 percent, or $19.40 for every $1,000 invested in it, according to Morningstar
Inc., a mutual fund research organization in Chicago. The expense ratio for small-cap growth
funds is 1.66 percent, Morningstar said.
Investment Objective
This fund is an open-end, no-load fund. It tries to achieve long-term capital appreciation by
investing in companies with a maximum market value of $550 million.
Fund Facts: Fremont Investment Advisors, Inc. 333 Market St. San Francisco, CA 94105
800-548-4539 These are the top 10 companies in the microcap fund as of June 16, Kern
said: 1) Emulex Corp. 2) Orckit Communications Ltd. 3) Ancor Communications Inc. 4)
Information Resource Engineering Inc. 5) Wesley Jessen VisionCare Inc. 6) TeleTech
Holdings Inc. 7) MDSI Mobile Data Solutions Inc. 8) |
