A Mutual Fund That Wins Big by Investing in Tiny Companies
A nine-person committee approves every stock James Micro Cap buys and sells.
Over the past year, small-company value funds have provided little value for their shareholders. On average, funds that focus on cheap small-capitalization stocks lagged both the small-cap Russell 2000 index and Standard & Poor’s 500-stock index, which tracks big-company stocks. One small-cap fund that bucked the trend was James Micro Cap (JMCRX), which whipped the category average by nearly 11 percentage points.
As its name indicates, James invests in the smallest of the small. Managers Brian Culpepper, Trent Dysert and David James begin their search for potential winners by screening about 1,300 stocks with market caps of $1.4 billion or less. They assign each stock a score based on 27 factors, including price-earnings ratio, price-to-book-value ratio and relative strength, a measure of how a stock is performing compared with the broad market. Stocks scoring in the top 10% qualify for purchase. But every stock that enters (or leaves) the portfolio must win approval from a majority of a nine-person committee that includes the three managers.
The committee also dictates an overarching investment strategy. Based on the group’s 2015 outlook, the managers pared back holdings in energy and other commodity stocks, one reason the fund has performed well lately. Top holdings include such obscure names as ePlus and Covenant Transportation Group.