BIG RETURNS IN SMALL PACKAGES.

This article discusses the profits made by a diversified portfolio of small-company stocks in the U.S. in the first quarter of 1989. Take the top-performing Alger Small Capitalization Fund, up 20.21 percent. After a knockout quarter, it still has only $4.3 million in assets. Few people even know the fund exists. It recently rounded up the 1,000 shareholders needed to merit inclusion in the fund listings in the daily newspaper. The Kaufmann Fund, number 2 in the quarter and tops for 1988, has more than doubled in size since yearend, yet holds just $12.2 million in assets. Although small was profitable over the winter months, big funds did not exactly freeze up. The behemoth Fidelity Magellan Fund, with $9.67 billion in assets, racked up a 9.25 percent total return. In all, 3 of the 10 largest funds beat the 7.13 percent return of the Standard & Poor's 500-stock index. Perhaps the biggest disappointments for fund investors in the first quarter were the international funds, especially those that invest in Japan. But in difficult investment climates, smart ideas pay off. Christian Wignall, who runs G. T. Japan Growth Fund, scored an impressive 15.42 percent return by making a few shrewd moves. Buying a small fund that invests in small companies is, in itself, no guarantee of investment success. The portfolio manager still has to choose the right stocks. The biggest winners steered clear of high-technology stocks. The impact of a few winning stocks on a small portfolio can be enormous, especially in the quarter-to-quarter performance derby. With small funds, the question of whether the portfolio manager is a sharp stock-pricer or just luck is even more critical than it is with large funds.