In a market that is willing to pay a premium for liquidity or 'quality', micro-cap funds have been overlooked until recently. As specialty products, micro-cap funds have always been in the minority camp. However, the growth rate of new-fund introductions has declined somewhat over the past few years. Through October of this year, only four micro-cap funds had been introduced, compared to six in all of 1996 and eight in 1995.
Direct firms control most of the assets.
Such a track record clearly resulted in an unfavorable climate for launching new micro-cap funds. After the third quarter, however, the story for micro-cap funds became quite different. Seeking to capitalize on the latest market trend, a number of firms are setting up new micro-cap funds, including Wasatch, John McStay and Keystone Bank . Not all firms, however, are interested in micro-cap funds. A factor that works against these funds is the lack of economies of scale.