Dreyfus Fund Finds Trends Are Friends; Pets, Ethnic Banking; Small Company Growth seeks to limit volatility by watching valuations.(MUTUAL FUNDS)(MUTUAL FUND PROFILE)

Byline: KEN HOOVER

When Randy Watts and his colleagues poke around for outstanding, underfollowed stocks to buy for Dreyfus Premier Small Company Growth Fund, they sometimes spot a big demographic or economic trend that holds great promise.

That was the case when they noticed the growth at several banks that cater to Asian Americans. The U.S. is becoming more ethnically diverse, Watts reasons, and there's big investment potential there.

So the fund owns East West Bancorp, Cathay General Bancorp and Center Financial, all based in Southern California. East West and Cathay focus on Chinese Americans, while Center aims to serve the Korean community.

"We found that the Asian American population is growing faster than the rest of the population," said Watts. "About 50% get college degrees. They have high incomes, averaging about $78,000. They have a high rate of business ownership. There's a great need to finance Asian-American entrepreneurs. We feel these banks can tap into the relatively high savings rate."

Spanish-language broadcasters are another ethnic play. Watts thinks they have a bright future, but he owns none of them right now because he thinks they are overvalued.

Spotting trends like that has helped the fund yield consistent returns. An investor might balk at what appears on the surface to be a fund with only $4 million in assets and little more than a two-year track record.