George Henning, a mutual fund manager planning to open a Honolulu office, knows what it's like to be loved and snubbed by investors.

As manager of the Pacific Advisors Small Cap Fund, he's experienced the lows — an almost one-third drop in his fund during 2002 — and the highs — an 83 percent return the next year.

More recently Henning, a Glendale, California-based manager, has been spotlighted as one of USA Today's All-Star Mutual Funds and had Investors Business Daily mention his work earlier this year. During the past five years his value-oriented fund has had an average annual return of 17.26 percent, beating returns for Standard & Poor's 600 Small Cap Index and the Russell 2000 Index.

"The fund has ridden the small-cap bull market the past three years, soaring 245 percent," wrote USA Today in March. "Don't look for those high-octane gains going forward, but if you're looking for small-company growth, this is a good place to start."

The cliff-dive in 2002 was terrible, said Henning, 58, who markets the fund locally through Occidental Underwriters of Hawaii and others. Yet when asked, he'll say the year was also his best.

"We stayed with what we had because we had conviction and when the market turned around we were really rewarded," said Henning, on one of the five trips he typically makes here annually to meet with clients. "It's one of those things you don't get any credit for."

His once tiny fund (even by small-cap standards), has grown sixfold in the past four years and now has about $34 million in assets. He charges fees that are higher than some competing funds.

A Honolulu office is planned for the next 18 months. Henning wants to employ two people here to promote the funds and help service local clients.

Henning concentrates on companies that are the leaders in their industry with solid management and strong earnings potential. These are so-called small-cap companies where the total value of the firm's stock is about $500 million.

For the most part these consist of up-and-coming firms you've never heard of such as Mitcham Industries Inc., a Huntsville, Texas-based company that provides seismic equipment to the oil and gas industry. During the past year shares of Mitcham, which has a market cap of about $160 million, jumped 153 percent.

Henning would probably dismiss highlighting Mitcham's one-year increase. His philosophy includes investing in promising companies that won't pay off for three to five years and being patient when a stock price dips.

Much of this philosophy was honed as a senior executive at Chubb Corp. and Transamerica Corp. and in the past 13 years of running the fund. Henning does his own research, sizes up executives for their decision-making skills and telephones companies if there's something he's curious about.

Work at Transamerica also brought Henning to Hawai'i to work with Occidental. He liked the people he worked with and the patient investment posture of many of the clients.

"Today's focus is so much on a short-term approach. I still believe a long-term investment strategy can be effective," Henning said. "That's one of the things I liked about Hawai'i, because people here are really more long-term."

He continued to work with Occidental in 1992 when he started Pacific Advisors, which is now a family of six funds with $107 million under management. The company also manages private individuals investment accounts totaling about $120 million.

Besides offices in Glendale and Ojai, California, Pacific Advisors also has three people in Maitland, Fla. Herb Nishida, who sits on Pacific Advisors' board and is a former chairman of Occidental, said he was fortunate to have invested with Henning.

"Before George I would never put my money in the stock market," said Nishida, 65.

Reach Greg Wiles at gwiles@honoluluadvertiser.com.