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After making portfolio adjustments to compensate for last year’s market collapse, many mutual fund managers are hoping the market will stabilize by the end of the year. Even though some domestic funds are on their last legs, several funds managed by African Americans are weathering the storm fairly well.
The second quarter was kind to the Ariel Appreciation (CAAPX) and Ariel (ARGFX) Funds. As of August 14, both were sporting year-to-date positive returns–11.62% and 7.71%, respectively.
“What really helped our performance was that we avoided some of the major disaster stocks of the year and the most volatile industries [such as] tech stocks, telecom stocks, and dotcom stocks,” says John W. Rogers Jr., portfolio manager of the $405 million Ariel Fund.
Although the fund has 94.6% of its asset allocation in stocks, Rogers has chosen to invest in sectors such as services, durables, and financials, with holdings in a number of steady companies, such as McCormick & Co. (NYSE: MKC), a maker of household seasoning items, and Hasbro (NYSE: HAS), a manufacturer of toys.
Rogers says that his expectation for the Ariel Fund is a 15% total return for the year, but he added that he couldn’t make promises. Still, he says the economy’s problems shouldn’t totally discourage dutiful investors. “Eventually the economy will come back and it will be stronger than ever,” says Rogers. “That’s the tradition in the American economy and I don’t see any exceptions with that. I think investors should invest in stocks that they know well and understand which are managed by [experienced] investors.”
Rogers’ performance is indicative of the shift that has taken place among funds over the past year. For the most part, small-cap funds–the proverbial goats of the go-go 1990s–have displaced large-cap funds as the market’s performance leaders. The numbers bear out this assertion: According to Morningstar Inc., the Chicago-based mutual fund research firm, the average domestic equity fund lost more than 6% in the first half of 2001. Small-cap funds, however, grew a whopping 13% during the same period (see “Shooting for Big Returns,” this issue).
The Brown Capital Management Small Co. Fund (BCSIX) delivered positive returns of 4.4% year-to-date through June because of its steadfast investments in small companies, according to Keith A. Lee, who manages the fund with Robert Hall and Kempton Ingersol for Brown Capital Management in Baltimore. However, the fund was hurt by the volatility of the market. By August 14, its year-to-date total return was -1.41%.
“We’ve demonstrated consistent performance over the last 10 years because of our consistent approach to investing in small companies,” says Lee. “We conduct fundamental research to unearth exceptional small companies that have the wherewithal to become exceptional larger companies. We’ve had very low turnover because of our distinctive mind-set of patience and tolerance when investing in companies.”
Unfortunately, times have changed for the DEM Equity Investor Fund (DEMEX). The fund invests in companies owned or controlled by women, African, Hispanic, Asian, and Native Americans, and is managed by Nathan A. Chapman Jr., president of Chapman Capital Management