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Tiny stocks, big returns
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May 28, 1997: 4:18 p.m. ET
Micro-cap funds have been throwing their weight around lately
From Correspondent Carmine Gallo
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NEW YORK (CNNfn) - After taking a beating earlier this year, small-company stocks are finally beginning to join the rally. Both the Nasdaq and Russell 2000 have recently come back sharply -- good news for investors in a relatively new category known as micro-cap funds.
Micro-cap funds invest in the smallest of company stocks, primarily those with a market capitalization of $300 million or less. Over the past 70 years, these stocks have achieved an impressive 12.5 percent annualized return -- beating both small-caps and large-company stocks.
Portfolio manager Robert Kern of the Fremont U.S. Microcap Fund said that some investment gems are hidden in today's micro caps. (203K WAV) or (203K AIFF)
However, the micro-cap funds are more volatile than larger-company stock funds in the short term. This year, the average micro-cap fund fell more than 10 percent before bouncing back over the last four weeks. They're up more than 9 percent in the last month, besting the S&P 500 index during that time.
However, small-company analysts like Claudia Mott of Prudential Securities remain bullish on the sector, citing hopes for a capital- gains tax cut and the fact that small-caps are trading at their lowest levels in years.
"With small-caps looking better, the micro-cap part of the market is going to enjoy the same rally, the same rebound as investors start to dip down below anything that's not a large cap rally," she said.
Mott cautioned, however, that investing in micro-caps can be risky and advises investors who want to test the waters do so in a mutual fund which spreads the risk among many stocks.
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