The RS Partners Fund has backed enough winners over the past five years to make it one of the two top-performing U.S. small-cap value funds over the period. This year, its managers are cautious about the economy and looking towards prisons and schools as key growth sectors.

In an interview with Bloomberg published this week, the $2.3 billion fund's managers forecasted that Corrections Corp. of America and Corinthian Colleges Inc. would post strong performances in 2006, relative to companies whose profits are tied to consumer spending.

Andrew Pilara, who co-manages RS Partners with Joe Wolf and David Kelley, said the three expect rising commodities prices to put a lid on growth this year. They cite notably slowed growth in the fourth quarter of last year as evidence that the economy is wobbly. "Our caution led us to businesses that aren't economically sensitive," he said.

The RS Partners Fund -- advised by RS Investments, an employee-owned asset management firm -- has had an average annual growth rate of 22 percent since 2001, making it second only to the Hotchkis & Wiley Small-Cap Value Fund among 116 small-cap funds tracked by Bloomberg over the time frame. In the past twelve months, oil and natural gas investments have spurred 14 percent growth for RS Partners.

The fund has owned shares of Corrections Corp. for about a year, over which time the company's stock has bested the S&P 500 significantly. As overcrowding in federal and state prisons shows no sign of slowing, private prison companies like Corrections Corp. are looking at continued opportunity for growth.

Meanwhile, the National Center for Education Statistics expects the college enrollment of students aged 25 and older to rise significantly through 2011. While Corinthian has performed poorly over the past year, the fund managers believe it's set for a turnaround under the leadership of a new chief executive. 

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