Lately it seems that investors are anxiously awaiting a shift from small-cap stocks to the larger caps, and from value stocks to growth. Growth investing, particularly in the small-cap sector, has traditionally been considered a high-risk approach, yet in the past several years has proven to be rewarding.
After declining 5% in the first quarter of 2005, the small-cap growth sector rebounded in the second quarter (rising 3.64%), partly due to surging oil prices, which prompted investors to abandon large-cap industrial names and move into smaller, more specialized companies. Over the longer term, small-cap growth stocks are still outperforming their large-cap counterparts–the S&P Small-Cap 600/ BARRA Growth Index gained 15.27% (annualized) over the past three years through June 30, while the S&P 500 climbed 8.26%.
Among the best-performing small-cap growth funds is the $111 million Bridge-way Ultra-Small Company Fund (BRUSX), closed to new investors since December 2001. Portfolio manager John Montgomery invests in a diversified portfolio of micro-cap stocks (median market cap of $235 million). With a total of 97 holdings, more than half the portfolio's assets are invested in consumer stocks.
