Lou Holland Growth (LHGFX). Over the past decade, Lou Holland Growth has, from a relative standpoint, had its best years in rough markets. Still, management does know how to step on the gas in a bull market, as evidenced by the fund's 39 percent return last year. (The average large-growth fund returned 35 percent last year, according to Morningstar.) Although it's technically a growth fund, its managers are just as likely to consider a stock's value as they are to look at its growth potential. "We focus on companies with earnings-per-share growth rates that are faster than the general market. We like to buy those at reasonable valuations," says comanager Monica Walker. Management also prefers to own companies with strong balance sheets. "Obviously, we understand that some businesses require debt," says Walker. "But we do like companies that have good balance sheets and good cash flows."
Dreman Contrarian Small Cap Value (DRSVX). Mark Roach, a comanager of Dreman Contrarian Small Cap Value, likes to describe the companies the fund owns as "straw hats in the winter." These businesses, which he also refers to as "fallen angels," have solid models but are temporarily out of favor. "We're contrarian investors. We look for those stocks that have been overreacted to by Wall Street and by other investors," he says. The fund invests in companies with market capitalizations of between $300 million and $2.5 billion, which means that in addition to the small-cap stocks that anchor the portfolio, management will also own some mid-cap names. At any given time, it will own 100 stocks. Management looks to maintain equal weightings, so each company will represent roughly 1 percent of the fund's overall invested position. The fund's most senior manager is David Dreman, a well-known value investor who has been with the fund since its 2003 inception.
Westcore Select (WTSLX). This fund, which is managed by William Chester of Denver Investment Advisors, generally owns between 20 and 25 stocks. In picking stocks for the fund, Chester draws exclusively from companies owned by other managers at his firm. In that sense, Westcore Select is a "best-ideas" fund that buys only Denver's highest-conviction picks. The Select fund follows a "smid-cap" strategy, meaning that it purchases both small- and mid-cap stocks. Chester likes companies that have "emerging growth characteristics and attractive valuations." The fund's main focus is exploiting "the differences between expectations and reality," he says.
Marsico Flexible Capital (MFCFX). Managed by Doug Rao, this is a classic "go anywhere" fund. Currently, Rao has around 80 percent of the portfolio invested in the United States, but at times, up to 30 percent has been in China. Meanwhile, the fund can invest in common or preferred stocks of companies of any market capitalization, as well as in bonds and even warrants. Occasionally, Rao will also keep a sizeable chunk of the portfolio in cash. As a result of his opportunistic strategy, Rao generally does a lot of trading. The fund's turnover ratio, for example, is 259 percent. By comparison, a fund that replenishes its entire portfolio once a year would have a turnover ratio of 100 percent. In picking stocks, Rao seeks out companies with long-term advantages. These advantages can come from a company's technological prowess, cost structure, or brand appeal. "What we look for are what we would define as very high-quality companies that have long-term, sustainable moats around their businesses," he says.
Needham Small Cap Growth (NESGX). This fund has shown a great deal of talent in navigating the volatile small-cap market. Part of Needham's premium comes from an extensive research process, which is particularly valuable given the fact that smaller companies are often the most difficult to get an accurate read on. Within the small-cap universe, manager Christopher Retzler pursues a fairly diverse strategy. Notably, he employs a long-short approach, in part as a hedge against volatility. Shorting is a tactic that allows an investor to profit when a company's stock price goes down. Retzler says he likes to short companies where the management teams are "notorious for shareholder destruction." Meanwhile, the fund's long positions are often in post-IPOs that offer strong growth potential at a reasonable price. In 2008, the fund landed in the top 1 percent of Morningstar's small growth category.