Fund name: GKM Growth Fund (GKMGX)

Objective: The fund seeks long-term capital appreciation through an all-cap portfolio selected in a growth-at-a-reasonable-price process. The managers look, not surprisingly, for good companies, good management, strong growth and reasonable valuations.

Adviser: GKM Advisers, LLC. GKM was founded as a subsidiary of Gerard Klauer Mattison, an institutional research and investment banking firm, to provide investment management services to high net worth individuals, pension funds and foundations. In 2003, Jed Cohen bought and reorganized the firm. As of December 31, 2006, they had approximately $585 million in assets under management with their mutual fund accounting for less than one-tenth of that amount.

Managers: Jed Cohen and Timothy Wahl. Cohen helped form the original GKM Advisors in 2001. He has a lot of investment banking experience with major players in the "high net worth" realm: 10 years as a Senior Managing Director at Gruntal & Co.; 14 years as a Limited Partner at Bear, Stearns; and 9 years as a General Partner at Kleiner, Bell & Co. Wahl is President of President of GKM Funds, which launched the GKM Growth Fund in December of 2001. Before joining GKM, he ran his own investment advisory firm and spent some time at Gruntal. He also pitched in the Milwaukee Brewers system.

Inception: December 28, 2001.

Minimum investment: $1,000 for regular accounts and IRAs.

Expense ratio: 1.41% on an asset base of no quite $50 million.

Comments: For those looking for a consistent, core growth holding, there’s a lot to like about GKM Growth. For example, the lead managers are named Jed and Tim. Those strike me as reassuringly down-to-earth for growth fund guys. The fund follows the investment process used for their high net-worth accounts:

• Macroeconomic analysis of the U.S. and global economies
• Focus on industry leaders within attractive sectors
• A fairly discipline attention to valuations, both at purchase and once in the portfolio
• And conscious diversification decisions to help manage risk. The fund holds about 75 mid- and large-cap stocks, including some foreign stocks (about 7%).

In addition, they’ve got a healthy concern for minimizing taxes and transaction costs. Portfolio turnover averages 7% per year and has been as low as 1% in some years. As a result, they were able to report in their 2006 shareholder letter that they haven’t distributed any capital gains over the entire life of the fund. Morningstar reports perfect tax efficiency over the trailing five year period.

All of this comes together to produce some awfully solid performance, especially when you consider its tax-efficiency and modest risk profile. Morningstar ranks it this way:

GKM reports having out-performed the S&P500 (as of 3/31/07) for the year-to-date, past month, quarter, year, five years and since inception. At the end of April Morningstar was reporting a slightly more mixed result but still places them in the top decile of large-growth funds over the long term. They have, in addition, outperformed their peers in four of their first five full years of operation.

There are a handful of risks worth noting for potential investors. First, it appears that GKM would like to create one or more additional funds, which may prove to be a distraction for a small firm. Second, I’d be more reassured if Jed had chosen to invest in his fund. Tim, who appears to be the day-to-day manager (a guess based on the fact that he writes the shareholder letters and is President of the adviser), has a pretty substantial investment in the fund and together they co-own the adviser. Finally, I’m a bit worried about their perceived need to include a picture with swirly things (left) as an explanation of their investment process. It looks disturbingly like the astrophysicists’ picture of matter being drawn into a black hole.

Bottom line: Some funds are distinguished by their unique niche in the investing environment, others by the excellence of their execution. Pennsylvania Avenue, Nakoma, New Century Alternatives and QCM are all worthy examples of the former. It appears that GKM, like the Manning & Napier funds, are distinguished examples of the latter. For folks looking to cash in on the long-awaited "shift to growth," this seems like a disciplined, efficient and time-tested option.

Company link: http://www.gkmfunds.com/