High hopes for small stocks

0 Comments | Milwaukee Journal, The, Apr 2, 1995 | by Kathleen Gallagher

Five months and thousands of details after its co-founders left Strong Capital Management Inc., the Artisan Small Cap Fund is a reality.

Nationally known money manager Carlene Murphy Ziegler's small-company stock fund will be open to investors Monday. Ziegler and her husband, former Strong President Andy Ziegler, see Artisan Small Cap as the foundation for what they hope will become another high- performance Milwaukee-based mutual fund company with a national presence.

Although the Zieglers haven't disclosed the amount of financing they have, they say it is enough to fund their vision. So the big variable for investors is how Artisan Partners' flagship fund will perform.

Andy Ziegler, managing partner at Artisan Partners, compared starting a new mutual fund to building a race car. "You can have great suspension, aerodynamics and everything else but without a great portfolio manager, it's like having a Volkswagen engine in it," he said.

Analysts are unwilling to predict whether Carlene Ziegler will be the kind of top-performing engine Artisan Small Cap needs to attract a strong following. But they'll certainly be watching.

Carlene Ziegler plans to buy stocks for Artisan Small Cap using the same blend of growth and value styles that produced total returns of 100% for the Strong Common Stock Fund and 75% for the Strong Opportunity Fund during the 2 1/2 years she co-managed those funds with partner Dick Weiss.

"Starting a fund is like jumping onto a merry-go-round. A lot has to do with your point of entry," said A. Michael Lipper, president and chief executive officer of Lipper Analytical Services in Summit, N.J. Lipper believes a fund's first-year performance is often more a function of the market than the portfolio manager's skill. So the best time to jump in, according to Lipper, is at market bottoms.

But Artisan Small Cap is starting after several weeks of record highs in the market. Even so, Lipper said, "I think it's a good time to start a fund but this is a contrarian view."

Elizabeth Bramwell, former manager of the Gabelli Growth Fund, started her flagship fund, Bramwell Growth Fund, last August when the market was turbulent. The fund now has $35 million in assets and returned nearly 12% through March 31.

Leg 1 ends here "Carlene has a great record, and there should be a lot of interest in this fund," Bramwell said.

Ziegler achieved her great record, however, with Weiss. She began her career as Weiss' research assistant at SteinRoe & Farnham in Chicago. After moving up to portfolio manager, she continued to work with Weiss, moving with him to Strong. The question many observers are asking is whether Ziegler will be able to repeat the success on her own.

"It's really hard to say at this point, not having been fortunate enough to be a fly on the wall and see how the fund managers interacted," said Larry Chin, associate editor of the No-load Fund Analyst, a mutual fund newsletter published in Orinda, Calif.

Ziegler and Weiss were a very effective team, said Marshall Front, who was president of SteinRoe when Ziegler and Weiss worked there. He is now managing director at Trees Front Associates, a Chicago investment firm. "But if hard work, intelligence and vast experience count for anything, they should both do well on their own," Front said.

Ziegler said she bought 25% to 30% of the $2.5 billion in domestic stocks she, Weiss and Marina Carlson managed at Strong. Weiss and Carlson now co-manage the Strong Common Stock and Strong Opportunity funds.

Strong representatives declined to comment for this article, but Chin thought Ziegler's estimate probably was accurate.

Ziegler's investment approach often is referred to as "growth/value blend." She incorporates strategies of growth investors, who buy stocks of companies with better-than- average earnings increases and are expected to continue to have high profit growth. But Ziegler also uses some tactics from value investors, who tend to buy out- of-favor stocks whose prices are in the lower end of their trading range.

Chin thinks Ziegler's investment approach is almost identical to that of former co-managers Weiss and Carlson, but he sees a slight difference. "Carlene might be a little more growth-oriented, whereas Dick and Marina's style might lean in the value direction," Chin said.

Ziegler invests in some companies with market capitalizations of $60 million to $900 million that don't have a lot of analysts following them. Market capitalization is calculated by Leg 2 ends here multiplying the number of a company's outstanding shares by the current price of a share.

Ziegler said most of her stocks, though, have market caps in the $100 million to $500 million range. An example is Milwaukee's Marcus Corp., which has a market cap of about $350 million. Ziegler recommended it in early January when she became the one of a few women to participate in the Barron's Roundtable.

Marcus, which runs hotels, restaurants and movie theaters, has sales that are growing at 15% a year, but Ziegler thinks its stock is cheap. Marcus' price-to- earnings ratio is 13, based on May 1996 earnings, below the market average of about 15 for the same period. Investors use the P/E ratio calculated by dividing the price of a stock by its earnings to determine the price they are paying for a company's earning power.