Sticking to a quantitative investment philosophy has helped William Bannick and his Managers Cadence Emerging Companies Fund Ticker:(MECIX) score big over the past year and a half. In 2010, the small-cap-growth fund was up 40%, compared with 29.4% for the Russell Microcap Growth Index. And year-to-date as of May 19, the fund was up 11.88%, compared with a 7% gain for its benchmark.
“They have kind of a quantitative approach,” said Katie Rushkewicz, an analyst with Morningstar Inc. That approach includes using screening strategies and looking at stocks' earnings revisions and price momentum.
Mr. Bannick and his team also use investment screens to track small-cap companies for revenue growth, rising earnings estimates and a track record of beating analysts' earnings estimates, according to published reports.
“Microcaps have done well,” Ms. Rushkewicz said. “That has a lot to do with its strong performance.”
Such a quantitative process hurt the $68.7 million fund when the market was extremely volatile, but many quantitative managers struggled, Ms. Rushkewicz noted.
The fund's recent outperformance comes after a “not too impressive” run before and during the credit crisis. In 2007, the fund returned 2.53%, while in 2008, it dropped 42.58%, Ms. Rushkewicz said.
“It's taken quite an extreme turn,” she said. “But it does have a very solid long-term record, so that's not completely surprising.”
In a report last year, Ms. Rush-kewicz said the fund had returned nearly 10% since its inception in 1993. “There will be periods when the fund lags, so investors must be willing to be patient,” she wrote.
Ms. Rushkewicz noted that the fund, which had 98 microcap and small-cap stocks in its portfolio at the end of March, has had a series of stellar performers. Several of the fund's stocks were up over 100% for the 12-month period through March, and its four biggest gainers saw increases of more than 150%.
Those were: Travelzoo Inc. Ticker:(TZOO), Web.com Group Inc. Ticker:(WWWW), Westell Technologies Inc. Ticker:(WSTL) and A.T. Cross Co. Ticker:(ATX)
Mr. Bannick has managed the fund from the get-go. Michael Skillman, chief executive of Cadence Capital Management, said Mr. Bannick would not be available to be interviewed for this story.
The portfolio manager, however, spoke about the fund and the nature of investing in small-cap stocks for an article published in The Wall Street Journal this January.
“Small-caps are bull market investments,” he said. “They are going to respond better than the average stock in a market and economic rebound. When the economy expands, we start looking for companies in industries where revenues are expected to grow more than average.”
Mr. Bannick attributed about half of the fund's 2010 performance to information technology companies.
He said he doesn't intend to change the fund much in 2011, after being forced to find new places to put his money to work last year because of a large number of acquisitions.
The fund has a $2.5 million minimum investment. At the end of March, about 7% of the fund was in cash.
E-mail Bruce Kelly at bkelly@investmentnews .com.
