The stock market may be reeling, but small fund groups are faring better than bigger ones — at least in terms of bringing in fresh cash.
The stock market may be reeling, but small fund groups are faring better than bigger ones — at least in terms of bringing in fresh cash.
Of the 20 top-selling actively managed fund groups last year, 15 had less than $50 billion in total assets, according to Strategic Insight Mutual Fund Research and Consulting LLC of New York. The 20 top groups posted net inflows of $82.9 billion last year, $39.9 billion of which went into smaller complexes.
In other words, small fund groups took in 45 cents of every dollar that went into the 20 top-selling fund groups last year.
By comparison, in 2007, fund groups with less than $50 billion in assets gathered only 21 cents of every dollar that went into the 20 top-selling fund groups, according to Strategic Insight.
Among last year's big asset gatherers were Harbor Capital Advisors Inc. of Chicago, with $5.9 billion in net inflows, Fairholme Capital Management LLC of Miami, with $3.5 billion, and Diamond Hill Capital Management Inc. of Columbus, Ohio, with $1.2 billion.
Without a doubt, gathering assets last year was an accomplishment. Investors, unhinged by a 38.5% plunge in the Standard & Poor's 500 stock index and a 33.8% drop in the Dow Jones Industrial Average, yanked money out of mutual funds last year at a dizzying clip.
All told, investors pulled $224.6 billion more out of stock and bond funds than they put in, according to the Investment Company Institute of Washington.
The preponderance of inflows into small fund groups suggests that boutique fund groups, or even small fund groups run by big asset managers, have a leg up on their supersized rivals during market downturns.
MORE NIMBLE
Many financial advisers seek out small fund groups because they tend to be more nimble in their approach to investing, with a penchant for absolute — as opposed to relative — returns.
"It's back to basics," said Loren Fox, senior research analyst at Strategic Insight. "Investors are looking for focused commitment [to investment style]."
Generally speaking, small fund groups make their managers more accessible to advisers — particularly advisers who oversee substantial assets. What's more, portfolio managers at smaller companies tend to invest more of their personal assets in their funds.
"It matters that the managers have skin in the game," said Kathleen Hartman, principal at Greenleaf Financial Group LLC, a four-year-old firm in Indianapolis that has $12 million in assets. "I think it makes them more risk-averse and more tax-efficient."
Yale Levey, a principal at Next Generation Wealth Planning LLC of Roseland, N.J., recently began allocating some of his clients' assets to funds run by Clark Capital Management Group Inc. of Philadelphia, which has $1 billion in assets.
"I made that decision because of accountability and because the firm has more of a personal feel in their approach," said Mr. Levey, who oversees about $70 million in assets.
He also likes how he can pick up the telephone and speak to one of the company's portfolio managers.
"In 2008, we found out that all of the things we felt were true about in-vesting, or the safety that we thought was behind other investments, was gone," Mr. Levey said. "A firm ought to be able to have some tactical flexibility in this environment."
Nowadays, many small fund companies are making their portfolio managers even more accessible to advisers.
"If there is any time your shareholders will leave you, now will be the time," said Bruce Berkowitz, founder and managing member of Fairholme Capital. "During difficult times, we try to communicate with our shareholders more."
The firm increased the number of conference calls and webcasts with advisers, Mr. Berkowitz said.
In November, Waddell & Reed Financial Inc. of Overland Park, Kan., which offers the Waddell & Reed Advisors Funds and the Ivy Funds, held the first of several webcasts for advisers and individual investors, and held monthly conference calls.
STAR POWER
Another factor working to the advantage of smaller fund groups right now is that many such companies are defined by so-called star managers.
The CGM Funds in Boston, for example, has well-known stock picker G. Kenneth Heebner. And the Hussman Funds, which are run by Hussman Econometrics Advisors Inc. of Ellicott City, Md., has John Hussman, a prominent bear.
"I think in this time of such uncertainty, the importance of having a face for your franchise can be heightened," Mr. Fox said. "I'm not saying that every mutual fund has to have a star manager, but maybe there is a little more room these days for that star manager who can back it up with performance."
E-mail Sue Asci at sasci@investmentnews.com.
