Laura Lallos: With small-cap benchmarks lagging in 2015, investors may be tempted to buy in, but also wary. Morningstar FundInvestor newsletter recently came up with a list of small-cap Morningstar Medalists that have had lower downside capture ratios than the Vanguard Small Cap Index (NAESX).
That is to say these funds have performed better than small-cap peers in down markets during the past decade. Two of them are Silver-rated small-growth funds: Wasatch Core Growth (WGROX) and Conestoga Small Cap (CCASX). They both have below-average Morningstar Risk ratings, competitive performance, reasonable expense ratios, small asset bases, and long-tenured managers.
That said, there are key differences: Wasatch seeks companies with defensible economic advantages and lets stock-picking drive portfolio construction. Assets have clustered in industrials and financials stocks, where the fund is overweight relative to small-growth peers. Meanwhile, it has a significant underweighting in healthcare.
Conestoga's managers take a fairly conservative approach, but they also have a lot of leeway when it comes to sector weightings: The fund has nearly 40% in technology stocks, a significant overweighting even for a small-cap growth fund.
These funds provide very different sector diversification. Both, however, are solid choices for small-cap growth exposure.