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Small Funds, Big Returns

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The benefits small funds offer are often overlooked. Defined as portfolios with relatively small asset bases, small funds have the ability to establish larger positions in smaller companies without affecting the market for their stocks.

Not only do small funds have a bigger universe of stocks from which to pick, especially important for small-cap funds, but the ability to buy enough of a position to go around the portfolio. Also, small funds can get in and out of a position much faster than very large ones, which, depending on the circumstances, can be a distinct advantage.

Standard and Poor’s screened its database to uncover domestic equity funds with under $200 million in assets ranked 4 or 5 Stars as of June 30, 2003. Out of the 1970 funds with a 4 or 5 star ranking, only 4% made the cut. One caveat: Though the outperformers have a high Star ranking, some also have higher-than-average expenses that can result from poorer economies of scale.

Here is a list of the top three small funds in each investment style. Though no large- and mid-cap growth funds made it into the screen, all of the funds below are ranked 5 Stars by Standard & Poor’s and have delivered solid returns.

Three-Year Star Ranking**Three-Year Annualized Return (%)Expense Ratio (%)

Large-Cap Blend-11.51.3

AmSouth Mutual Fds Select Equity/Instl (ASEPX) 5+9.51.3

Pioneer Core Equity Fund/A (PATMX) 5+8.21.8

Large-Cap Value-2.01.4

Vontobel US Value Fund (VUSVX) 5+14.81.7

Nuveen NWQ Multi-Cap Value Fund/R (NQVRX) 5+11.91.3

Hotchkis & Wiley Large Cap Value Fund/I (HWLIX) 5+11.31.0

Mid-Cap Blend-0.71.3

Yacktman Focused Fund (YAFFX) 5+22.01.3

Eagle Growth Shares (EGRWX) 5+8.63.2

ABN AMRO Mid Cap Fund/N (CHTTX) 5+7.21.3

Mid-Cap Value+6.21.4

J Hancock Classic Value/A (PZFVX) 5+16.61.4

JPMorgan Mid Cap Value Fund/I (FLMVX) 5+16.40.8

Fenimore Equity Income Fund (FAMEX) 5+15.71.4

Small-Cap Growth-16.01.8

Perritt Micro Cap Opportunities (PRCGX) 5+11.81.6

Oberweis Funds:Micro-Cap Portfolio (OBMCX)* 5+8.51.9

William Blair Mutual Fds:Small Cap Growth/I (WBSIX) 5+6.21.3

Small-Cap Blend-0.71.4

Bridgeway Fund:Ultra Sm Company Port (BRUSX)* 5+24.61.3

American Century Small Company/Instl (ASCQX) 5+5.60.7

Al Frank Fund (VALUX) 5+4.92.3

Small-Cap Value+8.71.6

NI Numeric Investors Small Cap Value Fund (NISVX)* 5+25.81.7

Century Small Cap Select/Institutional (CSMCX) 5+18.71.5

Delafield Fund (DEFIX) 5+17.91.2

Source: Standard & Poor’s. Total returns are in U.S. dollars and include reinvested dividends. Data as of 6/30/03.

* Closed to new investors.

** Standard & Poor’s Ranking: A graphical representation of the fund’s performance relative to other funds in the same style, including account loads and any other sales charges. The overall S&P Ranking, using stars, is based on a fund’s Sharpe Ratio using the most recent 36 months of operating history. Five Star funds are the top 10% of funds ranked by Sharpe Ratio, while Four Star funds are on the next 20%. Both rankings outperform the three-year Treasury bill over 3 years and a Five Star Ranking also outperforms their benchmark over 3 years.