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.
Diamond Hill Select (DHTAX). This fund's managers pick their favorite stocks from the portfolios of three other Diamond Hill funds: Diamond Hill Small Cap, Diamond Hill Large Cap, and Diamond Hill Small-Mid Cap. If a stock isn't in at least one of those three portfolios, the Select fund can't buy it. In that sense, the fund's holdings are a bit like Diamond Hill's all-star list. Another restriction is that the fund can't own more than 40 stocks at a time. "Because it's intended to be a best-ideas fund, we don't want to have [too many] names in there," says comanager William Dierker. Lately, the fund has liked the healthcare sector. "With the concerns over what was going to come out of healthcare reform, a lot of these healthcare stocks were—and I think to a certain extent still are—not getting the credit they deserve," says Dierker. For the past several years, the fund has also maintained healthy positions in energy stocks.
Boston Trust Equity (BTEFX). While this fund certainly has some retail clients, it was designed for institutional investors. Notably, to gain access to the fund, investors need to pony up at least $100,000. For high-net-worth retail investors, though, there are certainly some potential advantages to a fund like this: Its annual expenses, for example, are capped at 1 percent. "I don't think anyone should pay more than 1 percent to have their money managed; that's enough," says manager Domenic Colasacco. In terms of style, the fund doesn't emphasize either growth or value investing. Its goal is to find companies with high-quality balance sheets and a competitive edge. It also likes to avoid business models that require a lot of leverage. The fund did a good job playing defense in 2008, but it lagged behind the competition during the rally last year, largely because its high-quality holdings were left behind as riskier fare shot up in value.
Earnest Partners Fixed Income Trust (EPFTX). A lot of funds looking to have the full faith and credit of the U.S. government behind them will look to treasury bonds. Earnest Partners Fixed Income, on the other hand, prefers some slightly more obscure options, such as bonds backed by lesser-known U.S. agencies. These agencies include the Small Business Administration and the Maritime Administration. "These are [investments] that have irrevocable, ironclad guarantees," says comanager Douglas Folk. The fund has most of its portfolio in AAA-rated bonds, but it does take on some credit risk, mostly through BBB (the lowest rating that is still considered to be investment grade) holdings.
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