Dreyfus Roars With Value Fund

A 36 percent return makes Peter Higgins's Dreyfus Midcap Value Fund a king in mutual fund jungle

When he wanted another company to help build his portfolio, Peter Higgins went, where else, to a builder.

Mr. Higgins snagged a California homebuilder called Kaufman and Broad, hammering out the sort of profit that a stock-picker lives for.

He runs the Dreyfus Midcap Value Fund (800-373-9387), and he looks to fill it with companies that have great financial numbers but are overlooked by other investors.

Kaufman fit the bill, with earnings expected to double by 1999.

The stock price has almost made the measure this year alone, starting 1997 near $13 a share and trading up to about $22 this week.

That sort of stock-picking pushed Higgins and Dreyfus Midcap to the front of the class last quarter, up 36 percent and outperforming all but three of the retail funds in the universe of 184 mid-cap value funds tracked by Morningstar in Chicago.

And investors have taken notice, pushing fund assets to $108 million from $22 million last March.

Even so, the fund is hardly a household name.

Neither of the major rating services, Morningstar and Value Line, cover it in depth, although the fund can be found in their computer databases. And Dreyfus has not exactly trumpeted Midcap's success in its lion-adorned advertising campaigns.

Keeping a low profile doesn't seem to bother Higgins, the fund's primary manager. He's content to keep picking solid, value-based stocks, regardless of roller-coaster moves in the broader market.

The goal of the fund, he says, is to beat the Russell Midcap Index - the 800 smallest companies in the Russell 1000 index.

Through Sept. 30, the Russell Midcap Index rose 27.6 percent, according to Lipper Analytical Services of New York. Another mid-cap index, the Standard & Poor's 400, rose 30 percent.

Higgins beat both.

He looks for companies with a market capitalization between $400 million and $4 billion that show value in three areas: price-to-earnings (stock price divided by profits), price-to-book (book value: a company's total assets minus liabilities), price-to-sales (stock prices divided by revenues).

And since many of his picks are cheap and out of favor with Wall Street, they have solid upside potential and tend to fare better than bigger companies in a general market decline.

Higgins won't discuss the broader market, but notes that underlying economic trends remain positive. Inflation remains low, he says, and corporate earnings continue to improve. The driver for the market, he says, will be interest rates, which this week fell below 6.3 percent, measured by the 30-year Treasury bond.

Higgins is based in Boston, with Boston Company Asset Management, a subsidiary of Dreyfus's parent company, Mellon Bank in Pittsburgh. Dreyfus itself is headquartered in New York.

Higgins and his small team scrutinize between 2,000 and 3,000 companies and settle on about 100 for the portfolio. How long they stay is another matter. "We set target prices" for stocks, he says. If the target is met, the stock gets sold, and another joins the portfolio.

"Mid-cap and small-cap stocks have done pretty well over the year," says Morningstar analyst Russ Kinnel, and the mid-cap value funds tend to be "somewhat overlooked," he says.

What may give the value group an edge, Mr. Kinnel says, is their smaller size compared with mid-cap growth funds. That means that the mid-cap value arena hasn't been totally worked over by hungry fund managers.

Historically, mid-cap value funds stress consumer service, consumer non-durables, and financial stocks, a mix that provides stability to the mid-cap allocation and makes it attractive over time, says Kinnel.

Higgins's fund has a strong weighting in all three sectors, although he has reduced the financial stocks, he says.

Stocks in the fund this year include H&R Block, Harcourt General (which includes retailers Neiman-Marcus and Bergdorf Goodman), insurer Allmerica Financial, and, of course, Kaufman and Broad.

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