Staying ahead of the pack - African American mutual fund companies - Brief Article - Statistical Data Included

Black Enterprise, April, 2001 by Donald Jay Korn

Black-managed mutual funds outpace overall sinking domestic stock funds

After a miserable fourth quarter, last year ended with a whimper for many mutual funds. According to Morningstar Inc. in Chicago, the average domestic stock fund lost almost 8% in the last three months of 2000, dragging down returns for the second half (-4.73%) and for the entire year (-0.23%).

Nevertheless, several funds owned and operated by African Americans bucked this trend, with strong second-half and full-year returns. Ariel Appreciation (CAAPX) and Ariel (ARGFX) funds, for example, gained more than 9% and 12%, respectively, in the fourth quarter, en route to outstanding 18.82% and 28.77% returns for the year.

"We stuck to our knitting" says Eric T. McKissack, portfolio manager of Ariel Appreciation Fund. "We avoided companies selling at unreasonably high prices, which were the ones hit the hardest last year. At the same time, we gained from renewed interest in financial stocks."

As evidence that Chicago-based Ariel Capital Management has a knack for picking well-valued companies, McKissack points out that several holdings of both funds were acquired in takeovers last year. "We mainly own small- and medium-sized companies," he says. "Such companies are relatively inexpensive so larger companies are buying them. With some of the stocks we owned, the takeover price was more than double the trading price."

Going forward, McKissack expects the housing market to strengthen, which could bode well for such holdings as Fortune Brands (NYSE: FO) and Newell Rubbermaid (NYSE: NWL). Other favorites: Energizer Holdings (NYSE: ENR), the battery company; Cendant (NYSE: CD), which has franchise operations such as Avis and Century 21; and Apogent Technologies (NYSE: AOT), which makes laboratory products used in the booming biotechnology business.

Participation in biotechnology paid off last year for Brown Capital Management Small Company Fund (BCSIX). "We own several companies in this area, such as Diagnostic Products (NYSE: DP) and Albany Molecular Research (Nasdaq: AMRI)," says Keith A. Lee, who manages the fund along with Robert Hall and Kempton Ingersol for Brown Capital Management in Baltimore. The small company growth fund had a gain of more than 15%, topping its peer group, which lost nearly 6% in 2000.

"We avoided the IPOs and the dotcom companies," says Lee. "Instead, we kept our focus on companies that have real profits or chance for sustainable profits in the next few years."

For 2001, Brown Capital will keep its emphasis on the healthcare area as well as business services, consumer goods, industrial products, and information knowledge management. "We like software companies such as Manugistics Group (Nasdaq: MANU)," says Hall, "which can enhance productivity for business users." Other favorites: Cheesecake Factory (Nasdaq: CAKE) and Panera Bread Co. (Nasdaq: PNRA), the bakery chain formerly known as Au Bon Pain, which are expected to serve up tasty returns for investors.

Not all of last year's top-performing funds were in equities. MDL Broad Market Fixed Income (MBMFX) is classed as a multisector bond fund, meaning that it holds various types of bonds. In 2000, when the category returned just 11.27%, the MDL entry exceeded the average.

"Last March, we went long," says Mark D. Lay, chairman and CEO of MDL Financial in Pittsburgh. "We sold bonds maturing in three years or less and bought 30-year Treasuries." The move paid off as the federal budget surplus enabled the Treasury to redeem long-term bonds instead of issuing new ones. Reduced supply and increased demand drove up the prices of the fund's long Treasuries.

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