Schroeder Micro Cap Fund owns 4+ % in ISSI!
Individual Investor
Forget Tech, These Funds are Hot
(05/23/00)
Senior Editor: Len Hollie
Who says you can't make money in this market?
Don't tell that to a number of top performing mutual fund managers who have literally defied market gravity through mid-May.
Yes, we know that investor flight from tech stocks due to interest rate hike jitters pushed the major indexes deep into the red on Monday, with the Nasdaq hitting a new intra-day low for the year.
But if tech is what investors are running from, then what are they running to?
Well, so far this year, biotech, energy and small-cap and micro-cap stocks have topped the charts.
To be sure, some investor dollars are likely parked in money market funds waiting for the dust to settle, while others are seeking a safe-haven in the bond market. But for those investors who have stayed invested in stocks, and specifically in mutual funds, they have benefited from several funds which have turned in stellar performances so far this year.
The best performing mutual fund through mid-May was the Schroder Micro Cap Fund (NASDAQ: SMCFX - news), which was up a whopping 56.59% through Friday. And it's not alone, one other non-institutional mutual fund joined it in posting year-to-date returns in excess of 50% -- the Monterey Murphy New World Biotechnology Fund (NASDAQ: MNWBX - news), which returned 52.87%.
Slipping just a bit off the pace, the Fidelity Select Energy Service Fund (NASDAQ: FSESX - news) returned 44.88% during the same period, and the Rydex Energy Services Fund (NASDAQ: RYVIX - news) returned 42.51%.
Contrast those returns with the Nasdaq Composite, which is down 16.68% during the same period, and the Dow Jones Industrial Average, which is down 7.57%. Even the broader indexes are laggards: The S&P 500 is down 4.24% year-to-date through Friday, and the small-cap laden Russell 2000 is down 4.96%.
What gives?
Schroder Micro Cap fund manager Ira Unshuld says he's been busy trading stocks in a very volatile market. Unshuld is looking for long-term capital appreciation, and the portfolio holds about 63 stocks.
Unshuld invests mainly in U.S. companies with market caps of less that $300 million. He usually finds some of his best picks in the bottom third of the Russell 2000 Growth Index, but he has also used forward currency contracts, short-selling and options and futures as a hedge.
One stock that was added to the portfolio, and is among the fund's top holdings is Keithly Instruments (NYSE: KEI - news), which produces testing and measurement equipment for the high-growth sectors of the electronics industry, including electronic components, telecommunications, and semiconductors. The stock represents about 4.3% of the portfolio.
Another top 25 holding, and a recent addition, is Technology Solutions (NASDAQ: TSCC - news), a global eBusiness consulting and systems integration firm, which provides technology, operations, and business expertise to help companies make better use of information technology. The stock comprises about 2.3% of the portfolio.
An additional top holding is Integrated Silicon Solution (NASDAQ: ISSI - news), which designs and develops high performance memory semiconductors that are used in Internet access devices, networking equipment, telecom and mobile communications equipment, among other applications. This company's stock makes up a little more than 4% of the portfolio.
Another top performing fund so far this year is Monterey Murphy New World Biotechnology, a small cap growth fund. Among its top holdings is Alkermes, Inc. (NASDAQ: ALKS - news), which develops drug-delivery devices that controls and sustains the release of injectable drugs lasting several days to several weeks.
The fund also holds Protein Design Labs, Inc. (NASDAQ: PDLI - news) , which develops humanized antibodies to prevent or treat various diseases, including cancer.
Portfolio manager John Michael Murphy is also looking for long-term capital growth, and he scours both the U.S. and foreign markets for companies that he believes will benefit from the advances in biotechnology, including drug development, drug delivery, and genetic sequencing and mapping.
So far this year, oil company stocks have been Wall Street darlings, and that is reflected in the top five mutual fund performers year-to-date, where both the Fidelity Select Energy Service fund and the Rydex Energy Services fund landed.
The Fidelity Energy fund is a pure play on escalating energy prices, and fund manager Nicholas Tiller's portfolio consists almost entirely of oil-services stocks. In fact, the fund is mandated to invest at least 80% of assets in this area. That strategy gives management little room to maneuver, but it can shift into such specific service areas as drillers and equipment makers.
Among the fund's top holdings are Nobel Drilling Corp. (NYSE: NE - news), which provides drilling services with a fleet of 48 offshore drilling units in key markets around the world, and also has a fleet of nine semi-submersibles and three drill ships, among other resources. The stock comprises slightly more than 7% of the portfolio. The fund also holds BJ Services (NYSE: BJS - news), and Schlumberger (NYSE: SLB - news).
The Rydex Energy Services Fund has many of the same holdings, but also holds Transocean Sedco Forex (NYSE: RIG - news) , an offshore drilling contractor that specializes in the technically demanding segments of the offshore drilling business, such as deepwater and harsh environment drilling services.
Bottom Line:
Even though tech has tanked so far this year, investors can find a lot of high octane performers among the biotech and oil services sectors, and in smaller stocks.
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