Stephens Small Cap Fund Sees Opportunities

BIKE RACING IS GOOD PREP WORK FOR INVESTMENT professionals, says fund manager Ryan Crane.

"There's a certain parallel in what I do for a living and what I do for fun," explains the 37-year-old Crane, who's been cycling competitively since age 12. "On a bike, you're riding against the clock, and the fastest guy wins. There's a lot of objectivity in racing."

Crane's day job as manager of the $44 million Stephens Small Cap Growth Fund (STSGX), launched in 2005, requires similar traits. "You have to have a competitive spirit and a drive to excel. Performance matters, and at the end of the day you are rewarded for your efforts. And your scorecard is in the newspaper every day."

The University of Houston grad does well in both his pursuits. In 2004, he won biking's U.S. Master's National Championship in matched sprints, and the Pan-American Masters Championship in Cuba in multiple events. While at AIM Capital Management, Crane ran its Small Cap Growth (GTSAX) portfolio; the five-star fund grew from $28 million in assets in 1998 to $3 billion-plus at its 2003 peak, generating a five-year cumulative return of 85.78% during his tenure versus the Russell 2000 Growth index's 33.77%.

Crane joined Stephens Investment Management in late 2004 as chief investment officer and senior portfolio manager. His two- and three-year total returns -- losses of 16% and 8%, respectively -- still place him in Morningstar's 16th and 33rd percentiles. But he's got a bunch of individual stock picks that are outperforming this year.

THE HOUSTON-BASED FIRM oversees some $450 million-plus in assets for wealthy individuals, pension plans, foundations and large institutions, including the states of Florida and Arkansas. The money is spread across separate accounts and small- and mid-cap investment strategies, including two mutual funds. The Stephens Mid Cap Growth Fund (STMGX) was launched in February 2006.

The small-cap fund has turned things around in 2009, clocking a year-to-date return of 13.75% through June 4, slightly underperforming its benchmark by 0.65 percentage points, and outpacing its peer group by 0.76 percentage points, respectively. "So far, so good," says Crane. "Small-caps historically lead the market out of recessions," he adds, "and growth funds like ours tend to be more aggressive out of the gate."

Crane and his team of three other veteran stockpickers seek two types of companies: those with what they call "core growth," meaning well-managed with strong business franchises and a competitive edge in fast-growing markets; and companies that have been experiencing rapidly accelerating earnings growth, owing to a specific business catalyst.

Right now, he sees many opportunities in the fund's main investment areas, namely in health care, consumer, business and financial services (which represent about two-thirds of assets), high-tech software and hardware stocks (which account for about a fourth of the value of his holdings), and manufacturing -- which makes up the rest.