Magazine article American Banker

Small-Cap Funds Top Performers in Second Quarter

Magazine article American Banker

Small-Cap Funds Top Performers in Second Quarter

Article excerpt

Small-cap mutual funds had a strong showing in the second quarter, replacing growth funds as the top performers among bank and thrift-managed equity funds.

Reversing a five-year trend, small-cap funds dominated a list of the top 50 bank and thrift-managed funds compiled by Wiesenberger of Rockville, Md., a Thomson Financial company. A year ago the same list consisted almost entirely of large-cap domestic growth funds.

Fund managers and analysts attributed the shift to a longstanding undervaluation of small stocks, generally defined as those having a market capitalization below $1.5 billion.

After last year's market downturn, analysts slashed estimates on small-caps so far back that earnings now look great compared to expectations, said Joseph A. Frohna, a senior portfolio manager at Firstar Investment Research and Management Co., the investment subsidiary of Firstar Corp. of Milwaukee.

We've seen a lot of small-cap companies outperform and beat their numbers, he said.

Furthermore, relatively low small-cap stock prices have fueled acquisitions by large-cap companies, adding to the small stocks' performance, said Mr. Frohna.

Firstar's Micro Cap fund had the highest total return among bank-managed funds in the quarter, at 31.05%. The Small Company Value fund of New York-based Dreyfus Corp., a subsidiary of Mellon Bank Corp. of Pittsburgh, finished second, with a 29.42% return.

Mr. Frohna attributed the Micro Cap fund's success to investments in the wireless telecommunications, Internet, and oil and gas sectors, coupled with the growth of small-cap stocks overall. …

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