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Small-Sized Perkins Funds Go No-Load


At least one fund group is marching to the beat of its own drummer by making a trio of significant changes.

The Perkins Funds, which include the $31 million Perkins Opportunity Fund and the $1 million Perkins Discovery Fund, officially dropped its 4.75% maximum front-end sales charge and went no-load as of July 30 as a way to pump up assets.

The fund's advisor also slashed the 12b-1 fees in half, from .50% to .25%, by eliminating the previously charged .25% shareholder servicing fee. The remaining .25% trailer fee will continue to be paid to brokers who had previously sold the funds and to the various fund supermarkets through which both funds are distributed, said the company's director of marketing, Joseph Pavicic.

Furthermore, Perkins tacked on a 1% redemption fee to both funds as of July 30 on assets redeemed within six months of purchase. As with other funds' redemption fees, this fee will be paid back to the appropriate fund and is intended to reduce the costs to the fund associated with short-term trading.

The two funds are managed by Perkins Capital Mgt. of Wayzata, Minn., which began in 1984 and manages a total of $300 million for both individual and institutional investors.

Growing Assets in a Niche

All three initiatives were implemented to help the small funds achieve better distribution, grow assets and reduce swollen expense ratios, said Pavicic.

Perkins, which touts itself as a highly specialized manager in a niche market, had attempted to garner attention from the brokerage community to increase assets, Pavicic noted. "But we weren't able to gather the attention of brokers and assets from that arena," he said. "How does a small fund compete against a preferred fund family that spends millions of dollars?"

Being small, the Perkins Funds had no wholesalers and relied solely on Pavicic's efforts at reaching brokers. "When you are a small fund group, you can't have 30 people running around the country traveling, sleeping and eating. You would run out of money in no time," he added.

At the same time, Pavicic was seeing a trend, fueled in large part by the increasing availability of mutual funds via the Internet. Investors were wondering, with so many good no-load funds easily available to them, why they would want to put less than 100% of their investment to work, he said. So Perkins chose to go no-load and abandon its sales charge altogether. "You have to jump through this hoop," Pavicic said.

Wooing Planners and Investors

Now, the fund group is hoping to capture the hearts of fee-based financial planners, many of whom look for niche no-load funds to plunk their clients' assets into. Instead of the intended brokers, it was those financial planners who had become significant investors in the funds, Pavicic said.

Moreover, Perkins hopes its positive press coverage, which includes an April 2001 profile article in The New York Times, will spark interest among retail investors and spur sales. Perkins is also betting that investors will flock to its diminutive Discovery Fund because it was recently awarded the much-coveted Morningstar five-star rating for the past three-years. "I think you can succeed no matter who you are if you have the performance and the track record," Pavicic said.

Those additional sales, aimed at increasing the fund assets to the $50 million break-even level, should help the funds achieve economies of scale and reduce annual expenses, noted Pavicic. Each fund's expense ratio is now in excess of 2.2%, according to Morningstar

But the fund advisor also wants those new dollars to stay put for awhile. Which is precisely why the 1% redemption fee was added, noted Pavicic. It wasn't that the two Perkins funds were seeing hot money movements. Rather, the fee was imposed to prevent the hot money dilemma, which Perkins had already seen take its toll years earlier.

Learning from Experience

According to Pavicic, between 1993 and 1995, the Perkins Opportunity Fund, a flexible fund that can invest in companies across all market capitalizations, was among the top ranking equity funds. But that stellar performance attracted investors seeking short-term profits. When the hot money eventually flowed out, it took its toll on fund performance the following year, he said.

If you're a small fund manager, with limited resources for marketing or advertising, capturing the attention of retail investors may be pie in the sky thinking, said Michael Sakraida, a consultant and former fund industry executive in Westchester, NY. "I would concede going to direct investors completely. The direct route is just not worth it," he said.

But catering to the needs of already loyal financial planners who have an interest in niche funds, targeting planners in the fund group's home geographic area, or making efforts to get the funds included in specialized multi-manager or portfolio programs can help the funds grow and achieve economies of scale, Sakraida said.

"The good news is that for a fund this size going no-load isn't more difficult than being a load fund group. Either way, for a small fund manager it's very difficult," Sakraida said.