FUND WATCH


Champlain Small Company Closing Its Doors

This Kiplinger 25 fund won't be open to new investors soon.



It's not easy nowadays finding a standout small-company fund that will take your money. One by one, the category's best funds have closed their doors to new investors to staunch the inflow of assets.

Joining that club on October 15 will be Champlain Small Company, a member of the Kiplinger 25.

At $266 million, Champlain's assets aren't alarmingly high (the average for small-company funds is around $225 million). But Champlain Investment Partners, the firm that runs the fund, has a total of nearly $1.2 billion in the fund and similarly managed private accounts, and lead manager Scott Brayman has long said the firm wouldn't run more than $1.5 billion.

The good news is that investors still have three weeks to buy Champlain Small Company. That could also be bad news, if a ton of cash pours into the fund. Asset bloat makes it difficult for managers to buy or sell big positions in small companies without affecting their prices. From the perspective of existing shareholders, it might have been better if Champlain had announced that it was closing the fund immediately.

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Brayman, who launched Champlain Small Company in late 2004 after building an enviable record at Sentinal Small Company, invests in high-quality, growing companies. Unlike many growth managers, Brayman and his team -- all of whom previously worked at Sentinel -- buy stocks they think sell at a discount the underlying company's true value.

They also don't hesitate to sell a stock when it gets too big or exceeds their estimated value. Champlain avoids industries that require heavy capital expenditures and instead focuses on five sectors: consumer goods, financials, industrials, health care and technology.

Brayman's approach has consistently delivered over the years. Under his watch, Sentinel Small Company returned an annualized 15% from November 1995 to September 2004. That beat the Russell 2000 small-cap index by an average of 11 percentage points a year. That fund trailed the average small-company growth fund only in the bull market years of 1999 and 2003.

Brayman left Sentinel in 2004 and founded Champlain Investment Partners in Burlington, Vt. Since Champlain Small Company (symbol CIPSX) opened for business in November 2004, it has gained an annualized 15%, versus 10% for the Russell 2000 index. So far this year through September 26, the fund is up 14%, which ranks it among the top 30% of funds that invest in small, growing companies.

Over the next few weeks we'll tell you about potential replacements for Champlain. Stay tuned.




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