Artisan Small Cap Stalks Companies with Big Potential

published February 26, 2012

For most of the ’00s, Artisan Small Cap produced so-so results. Then, in late 2009, Artisan brought in managers from its Mid Cap Fund and tweaked Small Cap’s strategy. Small Cap made 20.5% in 2010, but it trailed the average small-company growth fund by 6.5 percentage points. In 2011, however, Small Cap started to take off, and it is now one of the top funds in its category over the past year.

My 9 Rules for Picking Mutual Funds

Small Cap’s current strategy resembles that of Mid Cap, which is closed to new investors. Instead of looking at growth in cash flow and return on invested capital, as Small Cap’s managers used to do, the team now focuses on firms with accelerating sales and profits. The managers are also willing to make bigger bets on stocks. The ten biggest positions now account for 30% of the fund’s $391 million in assets, up from 15% to 20% previously. “Getting lots of capital behind our best ideas has been a big driver in boosting the fund’s performance,” says co-manager Craigh Cepukenas, who has been with the fund since 2004 and stayed on when the Mid Cap managers came in.

The Artisan team seeks companies with strong competitive positions, as well as catalysts—such as new leaders or fresh products—that could invigorate profits. Although the managers pay attention to a stock’s price, finding rapidly expanding companies is primary. “We’re less concerned about what we’re going to pay for growth,” says Cepukenas.