CAN SLASHING MINIMUMS PUT UNSUNG NO-LOADS ON THE MAP? JURY’S OUT ON WHETHER FIRE SALES LURE ASSETS

A number of mutual funds, struggling to attract attention and assets, are holding spring and summer sales, lowering or waiving their minimum investment requirements.

The latest is Fremont Mutual Funds in San Francisco, which intends to waive the $2,000 minimum ($1,000 for retirement accounts) on its $14 million U.S. small-cap fund until Sept. 30.

“No one knows about us,” acknowledges Richard Thomas, Fremont senior vice president and head of marketing.

Fremont’s tiny small-cap fund, less than 20 months old, is stretching to reach at least the $25 million level needed to be included in the tables carried by various publications.

“If you’re not listed in the papers, you don’t exist,” says David Kern of Kern Capital Management in New York, the fund’s subadviser and lead portfolio manager. Mr. Kern’s father, Robert, president and CEO of Kern Capital, manages the significantly larger Fremont U.S. Micro-Cap Fund. The $137 million fund is approaching its fifth anniversary.

Fremont operates 11 no-load funds with assets of more than $2 billion. In 1988, it spun off from its roots as the in-house manager of the retirement plan for the 100-year-old engineering firm Bechtel Group.

Mr. Thomas says that Fremont has been trying to woo financial advisers who work with wealthy clients. They won’t even take a cursory glance at a fund with less than $50 million, or a track record of less than three years, he says.

Good performance can mesmerize investors and produce a tsunami of asset inflows. But small funds with good performance can end up becoming virtually invisible success stories, in part because of the crowded market and lack of Morningstar ratings, says Dennis Dolego, director of research with Optima Group, a Fairfield, Conn., consulant.

Fremont U.S. Micro-Cap sports a respectable, albeit brief, record. This year through April 30, the fund returned 9.19%. By comparison, the Russell 2000 for the same period was up only 2.57%, says Mr. Kern. Still, the small-cap market hasn’t been as captivating as its large-cap cousin over the last several years.

Mr. Thomas, who says Fremont doesn’t plan to engage in no-holds-barred marketing blitzes, is targeting the shareholder base of its 10 other funds with direct mail and website announcements.

Investors who want to seize the no-minimum opportunity must invest directly with the fund. rather than through the Charles Schwab Corp. supermarket.

Intermediary-sold funds have long used incentives such as temporarily giving larger commissions or sponsoring sales contests, and no-load funds are finally devising similar marketing strategies.

As part of its fifth anniversary festivities, Stein Roe’s $905 million Young Investor Fund waived its bargain-basement $100 minimum initial investment beginning April 29. The sale, to last through July 30, allows moms, dads and grandparents to invest any amount for the youngsters of their choice as long as they sign up for the automatic investment plan of at least $50 a month until the account reaches $1,000.

Just determining a minimum investment can be challenging. In March the $1.17 billion Heartland Value Fund slashed its minimum initial ante to $5,000 from $25,000, the figure set last November when the small-cap value fund reopened after more than three years.

“The move was a defensive measure designed to gingerly open the fund back into the marketplace” while preventing hot money from flowing in,” says Scott Powell, senior vice president of fund distribution and communication for Heartland Group in Milwaukee. But the company decided it had raised the bar a few notches too high.

Strategically speaking, other funds have raised their minimums because they realize that small accounts are costly to maintain, says Optima’s Mr. Dolego.

“It’s a nice idea but I don’t think it (waiving minimum investments) will generate a lot money,” says Angelo Cavello, a principal of Woodridge, Ill., consulting firm C-79 and new president of the 100% No-Load Mutual Fund Council.

Gimmicks can backfire. The danger is that a substantial increase in accounts won’t necessarily lead to a significant gain in assets invested. Fund sponsors have to stand ready to staff up to handle the extra volume.

Beyond that, there’s also the negative perception associated with slashing the price of entry.

Consumers may wonder: If they’re going to give it away, how good could it be?