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To: digger who wrote (2429)	5/1/1998 5:11:00 PM
From: digger	Respond to of 3115

FUND VIEW-Shaker Investments has bullish outlook Friday, May 1, 1998 04:09 PM NEW YORK, May 1 (Reuters) - Edward Hemmelgarn, chief of Shaker Investments LP, on Friday predicted small and mid-cap stocks in the U.S. will post strong gains in the current quarter, but warned those segments of the market could stumble in the second half of 1998 if interest rates start to rise. Hemmelgarn declined to make a prediction, but said he worries Federal Reserve officials may begin to tap the monetary brakes sometime in the third or fourth quarter. "That's the period of time I feel least secure about," Hemmelgarn told Reuters in an interview Friday afternoon. Hemmelgarn founded Shaker, named after its home Shaker Heights, Ohio, six and a half years ago. The private investment fund controls about $420 million in assets and focuses on finding value in high-tech small and mid-cap companies. The fund's net lifetime return is an annualized 29.94 percent, Hemmelgarn said. Despite a relatively short-term fear of the Fed, Hemmelgarn has a raging bull's outlook on stocks of smaller companies three to five years out. "You could not ask for better fundamentals in the next few years," he said. "There will be more good investments than we'll have money to invest in." Shaker is essentially 100 percent invested in the market, excluding about $70 million in two hedge funds, Hemmelgarn said. The fund rarely holds more than five percent cash, he noted. Hemmelgarn said he does not anticipate a spike in inflation later this year. But he said rates may fall to the point where the Fed feels compelled to choke off some of that added stimulus to the U.S. economy. Small and mid-cap stocks are currently undervalued relative to both the S&P 500 and interest rates, Hemmelgarn said. Hemmelgarn said he follows one index that shows the price-to-earnings ratio of emerging growth companies is about 18 percent higher than that of the S&P 500, which is at or near a historical high. That P/E spread is historically low given that small-cap companies grow more in the long run than larger companies, Hemmelgarn said. A shrinking federal deficit and baby boomers anxious to invest for retirement are other favorable fundamentals that will help fuel the bull market, Hemmelgarn said. Shaker strives to find undervalued companies that develop new technologies with strong growth potential. The fund tends to hold about 30 stocks at a time, Hemmelgarn said. Hemmelgarn said U.S. companies are becoming more productive, which helps justify historically high price-to-earnings ratios. Shaker's holdings include: Cognex Corp. (Nasdaq:CGNX) , Microchip Technology (Nasdaq:MCHP) , NeXstar Pharmaceuticals (Nasdaq:NXTR) , Rational Software (Nasdaq:RATL) , and Xilinx (Nasdaq:XLNX) .