Early this year, the managers of Paradigm Micro Cap (PVIVX) faced a tough choice: what to do about circuit board maker TTM Technologies, a big holding. The stock had dipped below $5, off more than 50% from its 2015 high. After speaking with TTM officials and reviewing the firm’s finances, the choice was clear: The managers bought more shares. It was a smart move; the stock has soared 140% from its low.
The decision wasn’t a surprising one for Candace and Amelia Weir, likely the only mother-daughter manager team in the fund business. TTM’s plunge coincided with a broad market sell-off. When the Weirs concluded that the stock’s fall was more a result of market forces than a change in TTM’s prospects, they saw a chance to buy a stock they liked at a fire-sale price. (For more on the Weirs, see What This Mother-Daughter Fund-Manager Team Can Teach Us About Investing).
The Weirs focus on companies with market values of less than $1.4 billion. They invest mainly in technology, industrial, retail and health care stocks, seeking growing firms that trade at fair prices, generate a lot of free cash flow (cash profits after capital outlays) and carry little debt. Micro caps carry above-average risk. In early October, six of Paradigm’s 41 holdings traded for less than $5, putting them in penny-stock territory. Over the past three years, the fund has been 26% more volatile than the average small-company stock fund.
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