Small Cap Fund, Not So Small Returns

If it's out of favor, Jean-Pierre Conreur may well own it. Conreur, a 63-year-old French native who runs Tocqueville Small Cap Value Fund, buys stocks after they've plunged 50% to 80% from their highs of the past 60 months. He then holds on for as long as three to five years. His patience pays: The fund delivered a 38.7% total return in 1999, vs. 21.3% for the Russell 2000 Index. Conreur spoke with Palash Ghosh of Standard & Poor's FundAdvisor. An extended version of the interview is available at

Q: What stocks do you buy?

A: I look for financially strong companies [that] appear to be undervalued in relation to sales, potential earnings, or underlying assets. I often buy companies that are posting losses. A company may be losing money because it is reinvesting in its business in order to beef up R&D or hire new salespeople. [But] heavy reinvestment usually presages a new pipeline of products.

Q: How many stocks do you own?

A: The fund has only about 35 stocks, and the top 10 names represent about half of the portfolio. We got extraordinary returns from our top holdings in the first quarter.

Q: Tell us about a top holding.

A: I bought Informix, a supplier of information management software, late last year. They had been a perennial underperformer. But I saw they had a pipeline of new products scheduled to come out over 12 to 18 months. They're heavily into Linux applications, Internet-based protocols, and software applications.

Q: What are the fund's top sectors?

A: As of Mar. 31, computers and software, 20.6%; energy, 15.7%; telecommunications, 13.9%; and health care, 11.7%.

Q: What prompts you to sell a stock?

A: I usually sell when a company's business dynamics are changing for the worse--for example, when it falls behind in product development. I don't usually sell when a stock reaches a certain price. I like to let my winners run, as long as the valuations do not become absurd. I sold Periphonics in the fourth quarter of last year after they had enjoyed a huge runup and were on the verge of being taken over by Nortel Networks.

Q: Are there opportunities in Nasdaq's decline?

A: Not yet. The vast majority of Nasdaq issues are trading at inflated prices. For the moment, I'm watching from the sidelines.

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