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Undiscovered mutual funds
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May 26, 1999: 10:59 a.m. ET
They're not household names, but experts say these funds deserve a look
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NEW YORK (CNNfn) - George Yeager has never made a commercial, and he could care less that his mutual fund has been out of the Wall Street limelight.
Assets at his U.S. Global Leaders Growth Fund are just $128 million, but his goal is steady -- long-term growth.
"We don't have any press people and we never want to be featured as the 'hot' fund," Yeager said. "We're patient investors and we'll be patient in terms of building the fund in a sound way."
It may sound hard to believe in an information-choked era, but investing professionals say there are plenty of good mutual funds that fall off the radar screen.
These funds have a small asset base but strong management and a steady investing style that gives them consistent long-term returns.
"They're not chartbusters, and that's what gets funds noticed," said Christine Benz, an analyst with fund-researcher Morningstar. "(But) there are plenty of funds that haven't garnered a lot of assets and are good investment vehicles all the same."
Why do some funds get overlooked? Part of the reason is that not all companies spend millions on advertising.
"They're not going to grow as fast as Janus (funds) would because there's no marketing behind it," said Sheldon Jacob, editor of the newsletter No-Load Investor.
Plus, big growth stocks have dominated the U.S. market, so funds that don't own big names like Microsoft (MSFT) and Amazon.com (AMZN) got left out in the cold.
"There's been such a huge run-up in growth funds that everything else gets ignored," said Craig Litman, a principal at Litman Gregory & Co. in Orinda, Calif.
Benz found eight domestic stock funds, including the U.S. Global Growth Fund, that all have assets of less than $300 million, expenses of less than 1.5 percent a year, manager tenure of three or more years, and returns in the top 20 percent of their categories for three years.
"They rack up records and don't get noticed," Benz said.
The other funds are MAP Equity Fund, Eclipse Mid Cap Value Fund, Eclipse Small Cap Value Fund, Harbor Value Fund, Henlopen Fund, Northeast Investors Growth Fund, and Preferred Asset Allocation Fund.
"We prefer not to have the hot money," said Kathy O'Connor, co-manager of the two Eclipse funds. "Some people make decisions in a quick fashion. Money in, money out. That affects performance in a portfolio. We prefer people who do their homework and understand the section of the market we're in."
The Eclipse funds are quantitative, meaning they base their stock picks on statistical research, O'Connor said. As of March 31, the small-cap fund owned such names as Handleman Co. (HDL), Ryan's Family Steak House (RYAN), and Standard Pacific (SPF).
Other names mentioned in a recent analysis of "forgotten funds" at Morningstar include Berger Small Cap Value Fund, Vontobel International Equity Fund, and Montag Caldwell Balanced Fund.
David Tierney, who manages 30 percent of the Harbor Value Fund, said the fund doesn't chase the latest trend.
"We just keep moseying along," Tierney said. "This is a value fund that won't run around the world and chase things. It is really focused in its mandate."
Jacob recommends First Hand Technology Fund, Transamerica Funds and Berger Select Fund.
Benz, of Morningstar, said there is no real advantage to picking an unknown fund except that a smaller asset base is easier to manage. There are plenty of funds that started out with stellar records that got so huge their returns suffered, she said. On the other hand, an investor needs to be careful if the assets are too small.
"You don't want a fund that had its best years with $5 million in assets," Benz said.
Yeager, of U.S. Global Growth, said his fund is a good core investment because it offers tax-efficient "sustainable growth with a global reach."
The fund's top holdings as of April 30 include AT&T (T), FDX Corp. (FDX), which owns Federal Express, Home Depot. (HD); Starbucks (SBUX) and Tiffany & Co. (TIF).
The fund has five out of five stars for risk-adjusted returns at Morningstar, putting it in the top 10 percent of its category.
"I wouldn't run it any different if it were a billion-dollar fund," Yeager said simply. "We've achieved our performance without being in those companies that are over-owned." 
-- by staff writer Martine Costello
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