There are more than 3,000 different mutual funds for investors to choose from. Keeping in mind that 85 percent of all equity funds underperform the Standard & Poor's 500, finding managers who can beat the averages is no easy task. But they're out there, and I know who they are.
SIT New Beginnings Growth, and its manager, Doug Jones, are among those unsung heroes in the money management business. No, SIT doesn't stand for "strategic investment lTC technology," or any other fancy names. The SIT family of funds is named after its founder, Eugene Sit. While it's not a household name (yet), SIT New Beginnings Growth (1-800-332-5580) is a fund that aggressive investors should consider for a portion of their portfolios.
"We're growth-stock pickers with an emphasis on rotating market sectors," explains Jones, based in Minneapolis. Although SIT New Beginnings invests primarily in "emerging growth, small company growth, over-the-counter stocks -- whatever you want to call them -- we are not small cap purists. We just want to do the best we can, regardless of market capitalization."
How have they done? Since inception in September 1982, New Beginnings Growth has an average compounded annual return of 22.07 percent, through the end of the third quarter of this year. Year-to-date, the fund is up more than 44 percent, and it's up more than 58 percent since the start of the small cap rally in October 1990.
On the downside, the two worst years of the fund were in 1984, when it lost 3.2 percent and 1990, when it lost 2 percent. Jones has done a tremendous job of protecting capital in down markets, while turning in excellent long-term results.
Unlike the scandalous float fiasco in which E.F. Hutton was involved, Jones concentrates on a different type of "float" (outstanding shares on the market) instead of market capitalization, when evaluating stocks. When investing in small companies, it's easy to become trapped in an issue with low trading volume.
That works great for you in up markets, but it can really work against you in a down market or when nasty earnings surprises occur. Jones wants to make sure the trading volume is there, so he doesn't move the price of a stock too far when entering or exiting a position.
The market capitalizations in the portfolio range from $150 million to just under $2 billion. And Jones is not afraid to overweigh sectors he finds attractive.
"Our key commitment is the health-care sector, with about a quarter of the portfolio in these companies," he says. "That category includes pharmaceuticals, hospital management and medical devices.
"For the health-care industry overall, demand remains strong at about a 10 percent annual growth rate despite the fact that their price increases are outpacing the general rate of inflation. We see no evidence of declining demand for more and better health care."
Jones likes to limit his portfolio size to about 65 names, which is lower than many of the other small cap growth funds I have profiled in the past. "That forces me every now and then to push some baby birds out of the nest, but I like the discipline of sticking to my best ideas."
Six- to 18-month price targets are put on each stock, but Jones remains patient with a relatively low portfolio turnover ratio of about 45 percent.