Analyst Offers His Selection of 4 Hidden Gems

Low-profile, relatively undiscovered mutual funds can have a big advantage over better-known funds, with the freedom to pick up bargains among smaller, less-liquid stocks.

But, says Russel Kinnel, equity editor for fund tracker Morningstar Inc., there are risks with these small-asset-base funds: The manager can be hired away; if a fund gets “discovered,” a bigger asset base can force management to alter its winning strategy; and investors usually must endure high expenses that can bite if performance slips.

We asked Kinnel for his favorite undiscovered no-load equity funds with less than $300 million in assets, and he came up with four that have “killer records” long-term and management that is “likely to stick around.” His picks:

* Fasciano: “This Chicago-based fund has produced outstanding risk-adjusted returns for more than 10 years but has just $100 million in assets. What I like is that it has outperformed its small-cap peers every time the market has gotten ugly: 1990, ’94 and ’98 [so far].” Phone: (800) 848-6050; minimum: $1,000; year-to-date return: +2.9%

* Weitz Partners Value: “This fund has 10 great years of returns too. As you might expect from a value investor in Omaha, Wally Weitz has a little [Warren] Buffett in him. He looks for strong, free cash flow and so gravitates toward cable, wireless and financial stocks. Its $100,000 minimum has kept it small. It’s available [for much less] through fund supermarkets, though.” (800) 232-4161; $100,000 ($2,500 through Fidelity); +17.2%

* Schroder U.S. Smaller Companies: “Fariba Talebi has built a great five-year record with a mix of growth and value stocks, yet the fund has only $55 million. She doesn’t make big bets on individual stocks [no holding tops 2% of assets] but has still earned nice returns. Tax efficiency hasn’t been great, so it might be better for IRAs.” (800) 344-8332; $10,000; -12.2%

* UAM FPA Crescent: “The fund buys small-caps and junk bonds, which means it’s having a terrible year. The long-term record is great, though, and manager Steve Romick has a rather different strategy. He buys damaged, but cheap, goods that no one wants. The only negative here is that the expense ratio is a little high.” (800) 638-7983; $2,500; +0.2%