Morningstar Advisor - April/May 2010 - 56

Undiscovered Managers

Michael Corbett

Perritt Micro Cap Opportunities PRCGX
$16K 13 S&P 500 TR 10 7 05 06 07 08 09 10

which Corbett prefers because he can groom them with his investment philosophy. Although the analysts have gravitated to certain industries over time, they’re all generalists, which they say keeps the job interesting. They also like the freedom, flexibility, and backand-forth banter that come with working at a small firm. Brian Gillespie, who previously worked at a much larger financial institution, says he thinks there are more opportunities to grow at Perritt Capital. The analysts perform their own trades, giving them accountability for their stock picks from start to finish. All three analysts come from hard-working, entrepreneurial families that gave them exposure to how small companies operate. Corbett, whose own father was a steel worker, thinks that’s important. One of his most interesting jobs growing up was working at a family-owned flower shop in suburban Chicago. Corbett was fascinated by the passion the family members had for their trade, and it gave him insight into how a business should be run. The team at Perritt is like a small, tight-knit family. “We all have our differences but come together to get things done,” Corbett says. The atmosphere is open and collegial, although sometimes things get heated when CNBC is on and a reporter is questioning whether small-cap companies can thrive in an environment in which credit has tightened. Corbett says such a claim “simply isn’t true,” pointing out that he stays away from startups and only buys well-managed firms that have little or no debt. He prefers simple businesses that can thrive without turning to Wall Street for financing, as indicated by both funds’ low debt/capital ratios relative to the MSCI U.S. Micro Cap Index and Russell Micro Cap Index. Of course, that doesn’t mean the funds are immune to trouble. Both struggled in 2008, especially Perritt Emerging Opportunities, which lost 58%. Yet it has stayed ahead of the MSCI U.S. Micro Cap Index and Russell Micro Cap Index since the fund’s 2004 inception. Perritt Micro Cap Opportunities has

gained nearly 9% annually since 1988 and roughly 13% per year since Corbett was named lead manager in 1999, topping most smallblend funds. The fund has also outperformed the Russell Micro Cap Index and MSCI U.S. Micro Cap Index since their inceptions in 2000 and 2003, respectively.
The Future

This year is Corbett’s 20-year anniversary at Perritt Capital. To financial advisor Rick Bloom, who runs an asset-management firm in Farmington Hills, Mich., that type of management stability is key. “I feel great about the management team,” Bloom says. “There’s no big-firm mentality where everything has to be so structured. They’ve always been extremely helpful with any questions I’ve had. From an advisor standpoint, the customer service is great.” So where does the firm, which now has more than $400 million in assets, go from here? Corbett says it wouldn’t be a stretch to run a small-cap fund that focuses on bigger companies than the other two funds, especially because successful micro-cap companies can grow into small and mid-cap stocks. (One of his first stock picks, International Game Tech IGT, is now a mid-cap.) Yet he wants Perritt Capital to stay true to its core competency of small-cap investing, so it’s unlikely the firm would launch anything drastically different. It’s also possible that the two funds will close to new investors if assets continue to grow. (Both have been closed in the past.) A succession plan is being worked out for Perritt, the firm’s founder, who is still an advisor to the funds and owns more than half of the firm. (Corbett and Perritt’s friends and family own the rest.) One thing’s for certain: The fund that was once fighting for its life is a survivor. K
Katie Rushkewicz is a mutual fund analyst with Morningstar.

Category 6 Small Blend Morningstar Rating

Expense Ratio (%) 1.42 5-Yr Anl Total Rtn (%)

QQQQ 1.45 Jan-05Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Feb-05Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 May-05Nov-05May-06Nov-06May-07Nov-07May-08Nov-08May-09Nov-09 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10
Minimum Investment $1,000 Data through Feb. 28, 2009 5-Yr Anl TR % Rank Cat 43

Perritt Emerging Opportunities PREOX
$16K 13 S&P 500 TR 10 7 05 06 07 08 09 10

Category 6 Small Blend Morningstar Rating

Expense Ratio (%) 2.11 5-Yr Anl Total Rtn (%) Jan-08 Jan-09 Jan-10 –0.8 5-Yr Anl TR % Rank Cat 73

Jan-07 Jan-05 Jan-06 QQ Feb-05Jul-05Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 May-05Nov-05May-06Nov-06May-07Nov-07May-08Nov-08May-09Nov-09 Jun-05 Feb-06Jul-06 Feb-07Jul-07 Feb-08Jul-08 Feb-09Jul-09 Feb-10 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09
Minimum Investment $1,000 Data through Feb. 28, 2009

56 Morningstar Advisor April/May 2010



Morningstar Advisor - April/May 2010

Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2010

Morningstar Advisor - April/May 2010
Contents
New On MorningstarAdvisor.com
Contributors
Letter from the Editor
Our Job: Building Better Investors
What’s Your Biggest Long-term Concern for the Economy?
An Early Start
Women’s Work
Investment Briefs
Markowitz 2.0
Asset Allocation Is King
A Decade of Riskier Assets ...
... but with plenty of Silver Linings
Be Prepared
Facing up to the Economy’s Problems
Levelheaded
Surviving on Conviction
Four Picks for the Present
Pharmaceutical Firms Get the Urge to Merge
Funds That Look Cheaper Than the Market
Finding Dividend Leaders
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks with Wide Moats
VAs: Assets Rise as New Sales Slip
New at Morningstar
When You Wish Upon a Star
Morningstar Advisor - April/May 2010 - Morningstar Advisor - April/May 2010
Morningstar Advisor - April/May 2010 - Cover2
Morningstar Advisor - April/May 2010 - 1
Morningstar Advisor - April/May 2010 - 2
Morningstar Advisor - April/May 2010 - Contents
Morningstar Advisor - April/May 2010 - 4
Morningstar Advisor - April/May 2010 - 5
Morningstar Advisor - April/May 2010 - New On MorningstarAdvisor.com
Morningstar Advisor - April/May 2010 - 7
Morningstar Advisor - April/May 2010 - Contributors
Morningstar Advisor - April/May 2010 - Letter from the Editor
Morningstar Advisor - April/May 2010 - 10
Morningstar Advisor - April/May 2010 - Our Job: Building Better Investors
Morningstar Advisor - April/May 2010 - 12
Morningstar Advisor - April/May 2010 - 13
Morningstar Advisor - April/May 2010 - What’s Your Biggest Long-term Concern for the Economy?
Morningstar Advisor - April/May 2010 - 15
Morningstar Advisor - April/May 2010 - An Early Start
Morningstar Advisor - April/May 2010 - 17
Morningstar Advisor - April/May 2010 - Women’s Work
Morningstar Advisor - April/May 2010 - 19
Morningstar Advisor - April/May 2010 - Investment Briefs
Morningstar Advisor - April/May 2010 - 21
Morningstar Advisor - April/May 2010 - Markowitz 2.0
Morningstar Advisor - April/May 2010 - 23
Morningstar Advisor - April/May 2010 - 24
Morningstar Advisor - April/May 2010 - 25
Morningstar Advisor - April/May 2010 - 26
Morningstar Advisor - April/May 2010 - 27
Morningstar Advisor - April/May 2010 - Asset Allocation Is King
Morningstar Advisor - April/May 2010 - 29
Morningstar Advisor - April/May 2010 - 30
Morningstar Advisor - April/May 2010 - 31
Morningstar Advisor - April/May 2010 - 32
Morningstar Advisor - April/May 2010 - 33
Morningstar Advisor - April/May 2010 - A Decade of Riskier Assets ...
Morningstar Advisor - April/May 2010 - ... but with plenty of Silver Linings
Morningstar Advisor - April/May 2010 - 36
Morningstar Advisor - April/May 2010 - Be Prepared
Morningstar Advisor - April/May 2010 - 38
Morningstar Advisor - April/May 2010 - 39
Morningstar Advisor - April/May 2010 - 40
Morningstar Advisor - April/May 2010 - 41
Morningstar Advisor - April/May 2010 - 42
Morningstar Advisor - April/May 2010 - 43
Morningstar Advisor - April/May 2010 - Facing up to the Economy’s Problems
Morningstar Advisor - April/May 2010 - 45
Morningstar Advisor - April/May 2010 - 46
Morningstar Advisor - April/May 2010 - 47
Morningstar Advisor - April/May 2010 - 48
Morningstar Advisor - April/May 2010 - 49
Morningstar Advisor - April/May 2010 - Levelheaded
Morningstar Advisor - April/May 2010 - 51
Morningstar Advisor - April/May 2010 - 52
Morningstar Advisor - April/May 2010 - 53
Morningstar Advisor - April/May 2010 - Surviving on Conviction
Morningstar Advisor - April/May 2010 - 55
Morningstar Advisor - April/May 2010 - 56
Morningstar Advisor - April/May 2010 - 57
Morningstar Advisor - April/May 2010 - Four Picks for the Present
Morningstar Advisor - April/May 2010 - 59
Morningstar Advisor - April/May 2010 - 60
Morningstar Advisor - April/May 2010 - Pharmaceutical Firms Get the Urge to Merge
Morningstar Advisor - April/May 2010 - 62
Morningstar Advisor - April/May 2010 - 63
Morningstar Advisor - April/May 2010 - Funds That Look Cheaper Than the Market
Morningstar Advisor - April/May 2010 - 65
Morningstar Advisor - April/May 2010 - Finding Dividend Leaders
Morningstar Advisor - April/May 2010 - 67
Morningstar Advisor - April/May 2010 - Mutual Fund Analyst Picks
Morningstar Advisor - April/May 2010 - 69
Morningstar Advisor - April/May 2010 - 70
Morningstar Advisor - April/May 2010 - 71
Morningstar Advisor - April/May 2010 - 50 Most Popular ETFs
Morningstar Advisor - April/May 2010 - 73
Morningstar Advisor - April/May 2010 - Undervalued Stocks with Wide Moats
Morningstar Advisor - April/May 2010 - 75
Morningstar Advisor - April/May 2010 - VAs: Assets Rise as New Sales Slip
Morningstar Advisor - April/May 2010 - 77
Morningstar Advisor - April/May 2010 - 78
Morningstar Advisor - April/May 2010 - New at Morningstar
Morningstar Advisor - April/May 2010 - When You Wish Upon a Star
Morningstar Advisor - April/May 2010 - Cover3
Morningstar Advisor - April/May 2010 - Cover4
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