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 "We went on a buying spree," said Chris Towle, co-manager of the
Towle Deep Value fund, which is up 2.2 percent for the year to date,
compared with a 3.7 percent decline in the benchmark Russell 2000.
<.RUT>
Towle's fund added seven positions to its portfolio of 35 stocks in
the first quarter, buying companies including retailers Pier 1
Imports Inc <PIR.N>, which the fund bought at $4 and closed Thursday
at $6.47, and Destination Maternity Corp <DEST.O>, which the fund
bought near $5 per share and now trades just below $7.
The quick bargain hunting enabled a majority of active small cap
stock pickers to do better than their benchmark Russell 2000 index,
an atypical outperformance.
Yet Towle and other fund managers who bought heavily in the first
quarter now say they are already trimming back on some of their
positions after small-caps jumped 8 percent in February, their
highest monthly return since 2011, making many stocks once again
look fully valued.
The trailing price-to-earnings ratio of the benchmark Russell 2000
now stands at 27.2, compared with a 19.2 P/E multiple for the
large-cap focused Standard & Poor's 500 index.
"During the first six weeks of the year you had no rhyme or reason
for the way stocks were selling," said Craig Hodges, co-manager of
the Hodges Pure Contrarian Fund, which is up 14.6 percent for the
year to date.
Hodges bought more shares of oil company Freeport-McMoRan Inc
<FCX.N> when its shares hit $3.15 earlier this year, and has since
then began trimming his position back as the shares jumped to $10.99
on March 22. Over the same time, he picked up more shares of United
States Steel Corp <X.N>, the second-largest position in his fund,
when it fell to $6.15 but has been trimming since as shares jumped
to $16.08 on Thursday.
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With concerns that oil prices would tumble into the $20s and that
U.S. bond yields could turn negative, the U.S. stock market fell
nearly 11 percent between the start of the year and its Feb. 11 low.
Since then, stabilizing oil prices and signs of growth in the U.S.
economy have pushed the benchmark S&P 500 back up 11.6 percent to
near its record-high.
The quick move in and out of stocks on the part of fund managers
enabled them to beat their own indexes in unusually high numbers.
Approximately 65 percent of small-cap managers topped the Russell
2000 during the first quarter, although typically only a minority of
stock pickers are able to outperform their indexes. In the first
quarter, just 22 percent of large-cap funds were able to beat the
S&P 500, according to Lipper data.
(Reporting by David Randall; Editing by Linda Stern and Bill Trott)
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