APRIL 2, 2003
FUND Q&A
Picking Big Winners in Tiny Stocks | Thomas Barry, manager of Bjurman, Barry Micro-Cap Growth Fund, explains how he scores so well with little tech and health-care outfits
|
Thomas Barry, a former Navy fighter pilot, knows a few things about sizing up risk. These days, as manager of the Bjurman, Barry Micro-Cap Growth Fund (BMCFX ), Barry sets his sights on stocks of micro-cap outfits that fly below Wall Street's radar. He was recently chosen as the best fund manager in the small-cap growth category in the first annual Standard & Poor's/BusinessWeek Excellence in Fund Management Awards. The fund scored high on S&P's and BusinessWeek's selection criteria, starting with five-year, risk-adjusted total returns and finishing with a qualitative assessment of management and its application of investment discipline.
For the five-year period ended Feb. 28, the Bjurman, Barry Micro-Cap Growth had an average annualized total return of 16.7%, compared with a decline of 4.7% for all small-cap growth funds. The fund ranks No. 3 within this peer group's entire universe of 340 funds and has outrun the Russell 2000 Growth Index in each of the last five years.
Palash Ghosh of S&P's Fund Advisor recently spoke with Barry about investing in the sector and the fund's strategy. Edited excerpts from their conversation follow:
Q: Have you had to change or adjust your investment philosophy in response to the weak global economy and stock market?
A: No. We remain focused on attractively valued, fast-growing, strong companies. This, along with our screening models, never changes. I don't worry a whole a lot about geopolitical issues, but I can say we respond to the poor economic climate by choosing, or getting rid of, individual stocks. This is done purely from a bottom-up perspective.
Q: What are the growth rates like for some of your micro-cap stocks?
A: For the past 12 months our portfolio had a median earnings growth rate of 80%. The micro-cap sector as a whole may indeed have suffered in earnings growth, but the stocks in our fund have not. The forward p-e ratio for our fund is only 15.5, which gives you an idea how the sector remains vastly undervalued.
Q: Given the collapse of larger-cap stocks in recent years, has Wall Street shown more interest in micro-cap companies?
A: No. It's not worth their time because they can't manage enough money in the sector to bother with them. In fact, there are now probably fewer analysts following micro-cap companies, which is good for micro-cap investors like me because micro-cap stocks remain ignored -- and therefore inefficiently priced.
Q: What are your fund's largest sectors or industries?
A: As of Dec. 31, our biggest sectors were electronic technology, 27.1%; health care, 25%; consumer services, 9.5%; finance, 8.1%; retail trade, 7.4%; commercial/industrial services, 6.5%; consumer durables, 4.8%; and producer manufacturing, 3.7%.
Q: Have you recently been adding to technology, your largest sector?
A: Yes. We have been buying more tech positions since late 2002, but this is simply because we're finding very attractive stocks in the sector on a price and earnings basis.
When we talk about micro-cap tech stocks, we mean little companies that have established niche products that dominate their particular industry and have enjoyed strong demand. When the economy finally turns around and investors gain some confidence, the tech sector, regardless of size, will be among the first areas to rebound and outperform.
Q: Your technology allocation was extremely high just before the bubble burst in March, 2000.
A: In late 1999, early 2000, our tech exposure was as high as 70%. Prices in the sector went through the roof, and we got uncomfortable having such high exposure there. We trimmed our tech stake to about 30% by the end of that year. I doubt that we will ever again see a 70% exposure in any sector.
Q: Why is there also high exposure in health care?
A: Like technology, a large number of health-care stocks rank high on our screening models. From a macroeconomic perspective, demographics will continue to benefit health-care outfits. Micro-cap health-care companies, in particular, are coming up with new, cost-effective products that service the larger health-care institutions.
|
Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
