3 fund managers find winners in diverse industries

3 fund managers find winners in diverse industries

Penske's growth has been aided by the growth of sales and leasing of commercial trucks.

Three fund managers found winners in such diverse small-cap industries as energy, consumer electronics and auto sales.

Small-cap value stocks are among the most riskiest stocks in the market. But higher risk can bring bigger rewards, and in the first quarter, it did for three of the better-performing mutual funds. Each profited more than 20 percent by betting on a small-cap value. Investors who invest in stocks that are trading below their fundamental worth are betting on stocks that are worth more than their fundamental worth. Companies are often classified in this way because they operate in out-of-favor industries or have had setbacks. The choice of three funds allowed them to flourish. A Kinetics Small-Cap Opportunities Fund toted up its first quarter return, which would have been whopping for an entire year - 60.5 percent. The S&P 500 index, on the other hand, had a 6.2 percent return in the quarter. Peter Doyle, one of the fund's co-managers, said his fund achieved its result thanks to an unusual holding: the Texas Pacific Land Corporation.

But a concentrated approach, like Kinetics's, can increase risk because it reduces diversification. By at least one measure, the fund's returns are riskier than its peers. A higher number means more risk. The fund's no-load shares have a net expense ratio of 1.65 percent and returned an annual average of 26.4 percent for the five years that ended March 31, compared to 16.3 percent a year for the S&P 500.

Lately, his stock picking has led him to a company that has been helped along by the pandemic: poly, formerly known as Plantronics, a maker of headsets and other communication equipment. The company had seen a planned merger collapse, and a competitor, Jabro, swiped market share. The stock sank early in the early days of the pandemic. Kammann sensed a buying opportunity. Hartford's fund, which has A shares with a net expense ratio of 1.3 percent, generated a rise of 23.8 percent in the first quarter. Jeff John, lead portfolio manager of the American Century Small-Cap Value Fund, has said that free cash flow is also a lodestar.

It's one of several measures that he considers as he's screening companies. Other features include balance-sheet strength and quality of management. Like Mr. Kammann's approach, Mr. John's has led him away from traditional value-centric industries like energy and utilities. So far, he has found hope in Compass Diversified, which he calls a mini-conglomerate. Compass, a publicly traded company, owns such diverse companies as the Sterno Group, producer of the canned fuel, and 5.11, a maker of clothing and gear for law enforcement and the outdoors. Compass's managers are incredible allocators of capital, he said.