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Who says growth funds can't pay off?

It's no secret that over the past couple of years growth funds have lost their performance oomph. But just because most are down on their luck, doesn't mean they're all out. Take the Bonnel Growth fund, for instance, it's up more than 7 percent so far this year.

Art Bonnel has been managing the Bonnel Growth Fund, a mid-cap fund bearing his name, ever since 1994. Despite being a top performer in its early years, the fund, (ACBGX), the fund did not fare well in 2000 and 2001. As a result, the fund has garnered every star rating possible from Morningstar. Even so, it's 5-year track record is worth noting: Over the past 60 months ending April 30. the fund's average annualized total return was 13.01 percent.

And that's the old news. This year, things have been ticking along just fine for Bonnel as the fund has been one of the better performers in its category ---- through May 1, was up 7.13 percent. That's well above the average performance bar for funds in the mid-cap growth fund category; through April 30, the average mid-cap growth fund was down 5.76 percent, according to Lipper.

Bonnel, who lives in Reno, Nevada, says he developed his stock-picking system 30 years ago and hasn't veered from it. " I don't change," he says. " I developed this system in the 1970s and have had some wonderful returns throughout those years."

Typically, the Bonnel Growth Fund, (800-873-8637), carries between 80 to 120 different stocks in its portfolio. Currently, there are about 80. But don't expect that number to remain the same for long, or the names to remain the same either. Bonnel isn't likely to hold on to a company who's numbers don't fit his model.

Here's more about the Bonnel Growth Fund:

Q: So what's the stock picking strategy that you created about three decades ago and continue to stick with?

Bonnel: Well, we look at four things. One is earnings growth, i.e., earnings have to be up over the quarter. We don't look sequentially; I look quarter over quarter. The second thing I look at is the current ratio and I like to see the current ratio remaining steady at 2 to 1. Current ratio is current assets vs. current liabilities.

The third thing is the amount of debt to equity and I don't like to have a company with much more than 30 percent debt. And then lastly, I like to see equity ownership by management of say 5 to 15 percent. I want them, management, to own stock and try to get rich through their equity ownership.

Q: Just to be clear, what's the difference between the current ratio and the debt to equity ratio?

Bonnel: The definition I use for debt is 5 years or longer. Current assets and liabilities, on the other hand, are due within the year. Between the two, that kind of gives you a balance of how the company is focused both short- and long-term.

Q: I know this portfolio can be traded often. Since do your stock picking according to the numbers, do you care which sectors the fund invests in or say what a company's management is all about?

Bonnel: No, I really don't . Right now the sectors that we have overweightings in are health care, retailing , restaurants, various food distributors and defense.

Q: Going forward, what are you expecting in terms of returns from the market?

Bonnel: I think the kind of growth that we were familiar with in the 1990s is disappearing. Now, it's back in the small- to mid-cap companies and a few large-caps also. But you're going to have to do your homework because it's more of a stock pickers market now.

I also think the market will be flat for probably the next 10 years. I don't think you're going to see major moves in the indexes and the growth you'll find will be in individual companies.

Q: So what you're saying is return expectations need to be curtailed for the next few years?

Bonnel: I'm kind of looking at it like this, if you get a 20-30 percent move on an investment, you might want to start looking at taking profits and then looking elsewhere.


Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.

To read more articles, please visit the column archive.

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