Small-Cap Stocks Remain Secret Despite Upturn Lord Abbett Manager Achieved 31 Percent Gain In Last Year

Small-cap stocks are the best-kept secret in the stock market, said Robert Fetch, manager of the $550 million Lord Abbett Research Fund Small-Cap Series.

“The biggest challenge is getting some recognition that there is a lot of value and potential in these stocks,” he told the Bloomberg Forum.

Fetch’s small-cap fund returned 31 percent in the past year, outpacing 28 percent for the Standard & Poor’s 500 Index, the widely followed measurement of large companies, and 25 percent for the Russell 2000 Index, the benchmark index for small companies.

Fetch laments that small-cap managers aren’t more appreciated by the investing public. He said a lot of the money that has come into mutual funds has gone to the large-cap funds.

“Smaller companies, on balance, have been ignored,” he said.

Fetch said he expects small-cap funds to gain in popularity as word spreads of their improving performance.

“There’s been such a tremendous interest in larger companies because they are perceived as being fundamentally safe,” he said.

The situation could change because prices of large-cap stocks have increased during the bull market and no longer offer such values, he said.

Large-cap stocks “have very high valuation risk,” he said.

For the four-week period ending Feb. 20, large-cap funds returned 7.91 percent, edging out the small-cap funds’ 6.95 percent, according to Morningstar. For the 13 weeks, large-cap funds made 8.86 percent, compared with 4.81 percent for small caps.

One of Fetch’s favorite stocks is Stride Rite Corp., of which the fund owns about 2 million shares. The Lexington, Mass.-based company makes shoes for children under the Stride Rite name in the U.S. and for children and adults in names ranging from Keds to Tommy Hilfiger.

Even though Stride Rite is down 61 percent from a high of 32 in 1992, Fetch said he is optimistic. “It’s a company that’s been showing improved fundamental performance in its core businesses.”

He also owns stock of Rogers Corp., which makes components used in electronics equipment for transmitting and controlling electronic signals.

In the past year, stock of the Rogers, Conn.-based company is up more than 40 percent to $37.37.