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3 Great Small-Value Funds

3 Great Small-Value Funds

Small value is a great diversifier if you have a growth-dominated portfolio. When the Apples and Amazons of the world get hit with a harsh correction, small value comes to the fore. This is also a good time to invest because nearly all small-value funds are open to new investors.

First Eagle Small Cap Opportunity is a newly minted medalist that’s worth a look. It’s run by Bill Hench, who brought his team over from Royce Opportunity. There they employed a deep-value strategy that produced strong returns, though results were certainly bumpy. The strategy is to find good turnaround plays with a potential catalyst for a rebound.

3 Great Small Value Funds

These small value funds earn a Morningstar Analyst Rating of Bronze or Silver.

  1. First Eagle Small Cap Opportunity FESAX
  2. LSV Small Cap Value Investor LVAQX
  3. Royce Small Cap Special Equity Invmt RYSEX

I also like LSV Small Cap Value LVAQX. It’s a Silver-rated quantitative fund run by an excellent team. The strategy focuses on the most proven predictors of company fundamentals and then adds in momentum factor to improve entry and exit points.

If you are looking for a defensive play, consider Royce Small-Cap Special RYSEX. Charlie Dreifus and Steven McBoyle scrutinize company balance sheets to avoid shady companies and find those best-equipped to ride out a recession. The fund typically performs best in down markets but lags a bit in rallies. Russ Kinnel shares more fund picks in 3 Core Bond Funds to Take the Sting Out of a Bear Market.

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About the Author

Russel Kinnel

Director
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Russel Kinnel is director of ratings, manager research, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He heads the North American Medalist Rating Committee, which vets the Morningstar Medalist Rating™ for funds. He is the editor of Morningstar FundInvestor, a monthly newsletter, and has published a number of prominent studies of the fund industry covering subjects such as manager investment, expenses, and investor returns.

Since joining Morningstar in 1994, Kinnel has analyzed virtually every type of fund and has covered the most prominent fund families, including Fidelity, T. Rowe Price, and Vanguard. He has led studies on the predictive power of fund data and helped develop the Morningstar Rating for funds and the Morningstar Style Box methodology. He was co-author of the company's first book, Morningstar Guide to Mutual Funds: 5-Star Strategies for Success (Wiley, 2003), and was author of the book Fund Spy: Morningstar's Inside Secrets to Selecting Mutual Funds That Outperform, published in 2009.

Kinnel holds a bachelor's degree in economics and journalism from the University of Wisconsin.

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