As a result, the $114 million fund bought boat maker Malibu Boats (MBUU), freelance digital services e-marketplace Fiverr International (FVRR), software maker Cerence (CRNC) and medical devices maker Silk Road Medical (SILK).
One way to find enough suitable micro caps currently is to tilt toward cyclical micro caps that fit the fund’s overall strategy, says fund lead manager Tom O’Halloran. That positions the fund to benefit from a microcap rally that he says is overdue.
Best Mutual Funds: Finding Profit In Boating
And that’s a big part of the reason for the fund’s interest in Malibu.
“Malibu Boats is a cyclical growth company that we added to during the pandemic,” O’Halloran said. “We consider it to be a high quality and innovative manufacturer of recreational boats. We believe boating will rebound with the economy, and that it will take share of wallet from other leisure activities that involve crowds.”
People can go boating without exposing themselves to potential Covid-19 infection by large crowds of spectators at, say, large sports stadiums.
Malibu is up about 23% so far this year, going into Thursday. The broad market in the form of the S&P 500 is down about 5%. And Malibu is back where it began at the start of the pandemic downturn. The S&P 500 is still down about 9%.
Website For Digitally Savvy Freelancers
Fiverr is another micro cap the fund added to during the pandemic downturn. The company runs a website where freelancers with digital skills can market their services.
Did it help keep this portfolio among the best mutual funds? Fiverr’s share price is up an eye-popping 195% so far this year.
Since the start of the market’s coronavirus pandemic downturn, Fiverr has soared 148%. Fiverr’s appeal is that it offers skilled workers a way to make a living at a time when Americans are forced to work at home and while millions of Americans have lost their jobs outright or at least lost income due to the pandemic.
“Fiverr’s focus is on workers who provide digital services, whether it’s graphic design, digital marketing, video animation or programming,” O’Halloran said. “If a small or larger business is seeking to hire good people in those fields, they go to Fiverr. It’s a next-generation jobs site.”
Fiverr estimates this digital jobs board targets a $750 billion total addressable market (TAM) in the U.S., O’Halloran says. That leaves plenty of room for Fiverr to grow. Its TAM is just $100 billion. “In the most recent quarter, Fiverr grew revenue 44%, with an acceleration in spend per buyer,” O’Halloran said. “Growth accelerated into April across all annual cohorts.”
One Of The Best Mutual Funds Likes Software That Lets You Talk To Your Car
Cerence makes software that enables a driver to communicate by voice with his automobile. This touchless interaction, as it’s known, helps drivers maintain vehicle control and avoid accidents. “At the same time, it enables original manufacturers of autos to gain more information about their customers that can be used to” sell more products and services, O’Halloran said.
Having been selected for use by several carmakers, Cerence has a 75% share of its market in cars and is the dominant player in its niche, co-manager Matthew DeCicco says.
Why else does one of the best mutual funds like Cerence? Share price is up 88% so far this year. It’s up 75% since the start of the pandemic downturn. Its initial public offering was Oct. 2.
Surgical Innovation Helps Best Mutual Fund
The fund added to its stake in Silk Road during the pandemic, O’Halloran says. Shares are up 4.5% so far this year. They’ve lost 5.2% since the start of the pandemic.
Still, the fund managers like the stock’s prospects. It has developed a way to treat carotid arterial disease with a catheter inserted through an artery. That’s less traumatic than accessing a patient’s carotid artery through direct surgery.
“The effect is a shorter hospital stay for a patient, faster recovery time and shorter procedural time for a physician,” DeCicco said. “It offers better safety and efficacy.”
Silk Road’s approach is called TCAR, which stands for transcarotid artery revascularization. The procedure involves reversing the direction of blood flow. Blood and any clots flow away from the patient’s brain as a surgeon operates. That lowers the risk of stroke.
Exploiting innovations is part of one of the best mutual funds’ overall strategy. “When we’re considering a stock, we look at three things,” O’Halloran said. “We look at the quality of a business. Secondly, we look at is how well they’re executing on their potential. Thirdly, we look at whether the stock market is cooperating with share-price momentum.”
Silk Road’s TCAR innovation is a factor in quality and execution.
Malibu has innovative products too. One is their surf gate, an adjustable platform on a boat’s stern that creates a wave behind a boat that surfers can enjoy. “They invented the surf gate, which enables wake surfing,” DeCicco said.
Bet On Homebuyers By One Of The Best Mutual Funds
LGI Homes (LGIH) is another stock that gives one of the best mutual funds exposure to a cyclical rebound, although the fund’s already large stake kept it from adding more shares during the pandemic downturn. “Housing is an area with cyclical exposure,” O’Halloran said. “If the economy recovers, housing will recover and stocks in that sector should do well.”
LGI builds homes for first-time buyers in fast-growth markets. The company also stands to benefit from a post-pandemic flight to suburbs by people who now can work from home, O’Halloran says.
And residential mortgage rates are lower now than they were 12 to 18 months ago, DeCicco adds.
The fund’s sweet spot for buys is stocks whose market capitalization is $500 million to $1.5 billion. As of May 31, the bulk of the fund’s bets were in biotechnology and other health care stocks, with a 40% portfolio weighting. The tech sector was 22%.
A 2020 IBD Best Mutual Funds Award Winner
What makes the portfolio one of the best mutual funds?
The fund’s approach made it a 2020 IBD Best Mutual Funds Award winner. The fund topped the S&P 500 in calendar 2019 as well as over the three, five and 10 years ended Dec. 31 on an average-annual-return basis.
So far during this coronavirus-scarred year, the fund is on its way to repeat as an IBD Best Mutual Funds Awards winner. The fund is up 9.55% vs. the S&P 500’s 4.67% setback and the 2.82% loss on average by the fund’s small-cap growth rivals tracked by Morningstar Direct.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about personal finance and strategies of the best mutual funds.
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