Top Small-Cap Funds Still Open to New Investors
Feel like you missed the boat on small-cap investing? This screen can help.
After being the life of the party for the first half of the 2000s, small-cap funds have been showing less spunk in recent months. That's largely to be expected, because investors often embrace large-company stocks and eschew smaller caps when they expect the economy could be slowing down. Although it's debatable whether you'd want to allocate a lot of new cash to small caps right now, you may have a legitimate need for a small-cap fund, either because you're building a portfolio from scratch or you want to upgrade your small-cap fund. The screen below points to some of the industry's best options--some of which recently reopened to new investors.
Over the past five years, small-cap funds gathered money at a rapid clip. Most of the best funds closed to new investors, which we think is a very good thing, because a reasonably sized asset base allows managers to nimbly execute their strategies. But for investors who hadn't bought in, there were trade-offs, including paying higher fees, betting on an unknown manager, or buying a fund with spotty returns.
In designing the screen, we wanted to find small-cap funds that didn't require lots of trade-offs. We looked for open funds that have relatively small asset bases, experienced management teams, and strong long-term records. We also wanted funds that had lower minimum investments--$10,000 or less, to be exact. (One of the funds returned by these screening criteria, JPMorgan Small Cap Value (VSEAX), had a soft close in June 2007 and is open to current investors and those investing through retirement and college savings plans.)
We also looked for funds with passing Stewardship Grades for funds so we could be assured that the funds are solid caretakers of investors' capital with investor-centric corporate cultures, reasonable fees, and sound regulatory histories.
This screen also pulled in Diamond Hill Small Cap (DHSCX), a Fund Analyst Pick that reopened to new investors on Sept. 1, 2007. This broker-sold small-value fund boasts top-decile five-year returns and a manager who has more than 20 years of experience running mutual funds that adhere to a strict valuation discipline. New investors have a chance to get in before the fund's asset base creeps back up to $500 million.
Another great fund that popped up on this screen is Royce Heritage Service (RGFAX). It's a no-load small-blend offering that has posted some of the best trailing returns in its category thanks to a stable and seasoned management team's stock-picking prowess.
One word of caution to those considering these funds: Given small-cap funds' multiyear run, investors should make sure that their small-cap allocation hasn't grown beyond its intended weighting before buying in.
As of Oct. 22, 2007, the screen pulled the following nine funds:
Aston/TAMRO Small Cap N (ATASX)
Columbia Small Cap Value I A (CSMIX)
Columbia Small Cap Value II Z (NSVAX)
Diamond Hill Small Cap A (DHSCX)
Franklin Small Cap Value A (FRVLX)
JPMorgan Small Cap Equity A (VSEAX)
Lord Abbett Developing Growth A (LAGWX)
Neuberger Berman Millennium Inv (NBMIX)
Royce Heritage Service (RGFAX)
Morningstar.com Premium Members can run this screen themselves by clicking here. (Note that the results may change as funds come in or drop out of the screen over time.) Not a Premium Member? You can still run this screen by taking a free, 14-day Premium Membership trial.
Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.