I normally don't get excited when a mutual fund company unveils a new product. Most new funds amount to little more than asset-gathering machines for their sponsors. But I am enthusiastic about three new funds that Grandeur Peak, a relatively unknown
What's so great about Grandeur Peak? Since their inception, all four of the firm's existing funds have clobbered their relevant benchmarks. On average, the funds, launched between 2011 and 2013, have beaten the benchmarks listed in their prospectuses by an average of 5.9 percentage points per year. That's huge. (All results are through
What's more, all of these funds are closed to all investors, meaning that the senior managers at Grandeur Peak are more concerned about producing first-class returns than they are about collecting the higher revenues that accompany growth in assets under management.
Make no mistake: In the world of small- and midsize-company stocks where Grandeur Peak funds fish, size matters. When a fund gets too big, it's virtually impossible for it to put up the kind of remarkable results that Grandeur Peak's four closed funds have achieved.
The Grandeur Peak funds are, in essence, offspring of the
Of the 22 Grandeur Peak analysts and managers, eight are Wasatch alumni. Both firms emphasize intensive company-by-company research. With assets of just a bit more than
The two new Stalwarts funds, which are scheduled to launch on
As much as I'm drawn to the Stalwarts funds, they'll almost certainly have a harder time producing great returns than the existing four funds, all of which have average market caps of less than
The focus in both Stalwarts funds will be on identifying high-quality firms, just as it is with the existing funds. Pearce says the managers and analysts look for companies run by top-notch executives. They also insist on high returns on capital (a measure of profitability), strong balance sheets and the opportunity for rapid future growth. But the managers won't overpay for great companies. Their style, like Wasatch's, is to invest in growing companies but only if they can buy them at reasonable prices.
Pearce says he expects the new funds to shine--relative to their peers--in bear markets. Here, the
Pearce expects 30% to 35% of Stalwarts assets to be invested in emerging markets. Emerging markets are statistically cheap, and I like them a lot, but I'd be surprised to see them hold up well in a bear market.
The Grandeur Peak funds are not particularly cheap. The Stalwarts will charge 1.35% annually, more than I generally want to pay. Global Micro Cap will charge 2.00%. That's close to outrageous.
My bottom line: The new funds are intriguing, but don't make a huge bet on them. Given that they will invest in small and midsize companies, I wouldn't put more than 10% to 20% of my stock money into Grandeur Peak funds.
What about Global Micro Cap? I haven't spent much time on this fund because unless you're already a Grandeur Peak investor, you're unlikely to be able to buy it. The fund will invest mainly in companies with market caps of
Here's what I'd do if I didn't already own a Grandeur Peak fund: Invest in one of the Stalwarts as soon as they become available on
Steven T. Goldberg is an investment adviser in the Washington, D.C. area and a contributing columnist for Kiplinger. .