Michael Balkin and Karl Brewer
William Blair Small Cap Growth Fund
by Marla Brill
MFI Publisher
Part II
Part I: The Bold and the
Boring
A Resurgence For Growth?
While William Blair Small Cap Growth
fund isn’t about to morph into the kind of aggressive, tech-loaded fund is was
two years ago any time soon, Balkin and Brewer say they are edging back into
some badly beaten technology names that they believe have a sustainable
competitive advantage. Insight Enterprises, a recent newcomer to the portfolio
that falls into this category, is the second largest distributor of personal
computers and electronic products in the country. Says Balkin, “We think this
business has bottomed out, and if the technology sector comes back, this chicken
tech stock will get pulled up with it.”
The pair’s recent tech toe-dipping might
raise the question of why, in light of recent comparative performance, anyone
interested in small companies should go for growth rather than value. After all,
over the last year ending January 10, the average small cap value fund returned
18.5 percent, compared to a drop of 3 percent for the average small company
growth fund, according to Lipper, Inc.
Despite recent history, Balkin thinks
that growth stocks, particularly those of smaller companies, could take the lead
again this year. “The Nifty Fifty Era from 1969 to 1972 resembles the
popularity of large company stocks in the 1990s,” he says. “Stocks fell into a
two-year bear market in 1973 and 1974. But in 1975 and 1976, small caps rose
over 50 percent.” He adds that coming out of a recession, the market has
historically favored growth over value.
“We anticipate a strong recovery in the
second half of the year,” he says. “And small cap stocks have historically
started to outperform well in advance of an upturn in the economy.”
At $50 million in assets, William Blair
Small Cap Growth fund remains nimble enough to shift gears into more aggressive
issues is that happens, and to take a meaningful position in stocks that have
fallen off of Wall Street’s radar screen. Because it is still less than three
years old, the fund has not yet received a Morningstar rating. That watershed
event has been known to bring in a flood of new investors, if it is favorable.
For the time being, though, William
Blair Small Cap Growth fund remains pleasingly small, and a true small company
fund. While its investment charter defines small cap stocks as those with a
market capitalization of $2 billion or less, its 68 holdings weigh in with a
median market capitalization of just $.7 billion.
The question now is whether continued
success and accompanying asset growth will make the fund too big to effectively
invest in small company stocks, a fate that has befallen far too many other
small company growth funds. Brewer says that his firm plans to cap the fund’s
assets “at some point.” Although he won’t specify exactly what that point is, he
maintains that his firm “won’t let the fund get too large to deliver good
performance.”
William Blair Small Cap Growth Fund:
At-A-Glance
Managers: Karl Brewer and Michael Balkin
Assets: $50 million
Top five holdings: Dynacare, Euronet
Worldwide, Vitalworks, FirstService Corporation, Harmonic LightWares
Telephone: 800-742-7272
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