(MONEY Magazine) – Finally, after years of unfulfilled promise, small-company stock funds may be ready to rocket again. Okay, we know you've heard that before. But this time, small-stock proponents -- who've had about as much credibility lately as rock fans who claim to have recently dined with Elvis -- may at last have a point. With the takeover market stymied and few bargains left among large companies, pension fund managers seem to be running out of excuses to ignore the inexpensive small-company sector (generally defined as stocks of outfits with less than $500 million worth of shares outstanding). That could spell opportunity. ''Institutional managers are showing a lot of interest in our Small-Cap Index Fund,'' says Vanguard spokesman Brian Mattes, who adds that institutional holdings at the $41 million fund have doubled from 17% to 34% in the past eight months. Similarly, Bradlee Perry, chairman of David L. Babson & Co., a Cambridge, Mass. money-management firm, says his firm had more inquiries from institutions about small-cap investments in the past year than in the previous five. So what? Consider this: collectively, pension managers control nearly $2 trillion in assets. If they committed even a tiny fraction of their stash to the small-company sector, that would give it a huge boost. And when small- company stocks get hot, they can sizzle: in the nine-year small-stock bull market that ended in 1983, they returned 1,165%, compared with only 174% for the S&P. If you are tempted by small-company funds -- and they can be an excellent choice for, say, 15% of your portfolio -- get in gradually, adding fixed amounts to your account at regular intervals whether the fund is up or down, and plan on staying put for at least three to five years. The first tactic will lower your average cost per share, and the second will muffle the impact of short-term market swings. If you can handle sharp moves in your investment, focus on small-company growth funds, such as no-loads Columbia Special (800-547-1707) and Janus Venture (800-525-3713), both up more than 48% in the three years to May 1. These funds favor companies with rapidly increasing earnings -- just the issues that will skyrocket if, indeed, small stocks' turn has come. For a steadier ride, consider funds like no-loads Pennsylvania Mutual (800-221-4268), up 27%, and Acorn (800-922-6769), up 36%. Their managers look for stocks selling below what they estimate to be their true worth. Because their prices are already low, such issues tend to hold up better during market drops.