Baron Small Cap's size stirs doubts

August 19, 2007|By Andrew Leckey | Andrew Leckey,TRIBUNE MEDIA SERVICES

Is Baron Small Cap Fund still as good as it ever was?

- R.H., via the Internet

It still seeks growth in nontraditional areas and tends to be light on technology, telecommunications and media.

Baron Small Cap favors firms with steady revenue, such as gaming companies and service providers. For example, Wynn Resorts Ltd. has been a favorite holding since that firm went public in 2002.

Portfolio manager Clifford Greenberg, in charge since the fund's inception in 1997, remains a thoughtful investor who has produced consistent returns and avoided bear-market damage.

The only concern is that asset size is now nearly $3.5 billion, which means a loss of some maneuverability in small-cap stocks. It will have to invest in more mid-cap stocks to fill out its sizable portfolio.

Baron Small Cap Fund (BSCFX) is up 27 percent over the past 12 months and has a three-year annualized return of 17 percent. Both results rank in the top third of small growth funds.

"We give Baron Small Cap Fund a lukewarm recommendation and think shareholders in it should stick by it because we like the manager and strategy," said Kerry O'Boyle, analyst at Morningstar Inc. in Chicago. "However, we do have concerns for new investors because of the fund's asset size."

The fund had been closed to new investors but reopened a year ago.

Greenberg is a long-term investor in an asset category known for a short-term mind-set. He prefers small, fast-growing companies with sustainable growth for the next five to 10 years. This can include beaten-down companies and special situations.

He is assisted by two analysts and is in regular contact with the firm's founder, Ron Baron, and the analyst team.

Consumer services represents one-fourth of assets, with business services and industrial materials other concentrations.

Among its top holdings are: CB Richard Ellis Group Inc., SBA Communications Corp., Gaylord Entertainment Co., Wynn Resorts, American Tower Corp., SunPower Corp., FLIR Systems Inc., Brookdale Senior Living Inc. and Eagle Materials Inc.

This "no-load" (no sales charge) fund requires a $2,000 minimum initial investment and has a 1.33 percent annual expense ratio.

Resolve this for us: Is a stock split a good thing or not?

- K.G., via the Internet

Consider it a mildly promising development that doesn't actually increase the value of one's stock holdings.

Although not all companies feel this way, some firms will split their stock because they believe the price exceeds the amount that smaller investors are willing to pay for it.

So, if an investor owns 100 shares of a company trading at $100 a share and it declares a 2-for-1 split, the investor winds up owning 200 shares valued at $50 a share after the split. There's no increase in total value of the holdings.

"It basically represents a corporate decision to keep the stock price at a level that makes it easy for investors to buy 100 shares," said Paul Nolte, investment director for Hinsdale Associates in Hinsdale, Ill. "Sometimes, companies have a stock price threshold, say $60 a share, so whenever it gets to that level they split it."

The potential positive is that studies have shown companies with a history of regularly splitting their shares tend to perform well, and that new investors often help give a stock a price run-up after a split. On the other hand, some firms declare reverse splits when their stock price has dipped too low.

yourmoneytribune.com

Andrew Leckey writes for Tribune Media Services.

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