Investing in Funds: A Monthly Analysis --- Fund Fiend: Small-Stock Caution --- After a big rally, some managers say investors should trim expectations
Managers of some red-hot small-company stock funds are cautioning investors that returns could start to cool off.</br></br>For the past three years, small-cap funds have been the top performers among diversified funds, according to Morningstar Inc.</br></br>The biggest winners: small-company funds focusing on growth stocks. So far in 2011, small-growth funds are up an average of 13%, Morningstar says. That follows an average 27% return in 2010 and 35% in 2009. Many funds have completely recovered losses from the bear market of 2007-09, when the average small-growth fund lost nearly 42%.</br></br>In contrast, large-cap stocks, as measured by the Standard & Poor's 500-stock index, are up 8.4% (about 9% including dividends) so far this year, and plenty of large-cap stock funds are still in the red from the bear market.</br></br>This has some fund managers turning a bit cautious. "We're still positively biased . . . but we feel we have had the bulk of the returns" we expected for 2011, says Mark Burns, a portfolio manager on Loomis Sayles Small Cap Growth, up 17% so far this year and 37% over the past year.