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Fund Spy

Four Tiny but Potent Mutual Funds

Let's get really contrarian.

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Let's get really contrarian and take a look at some of the smallest funds in the Morningstar 500. They're being ignored by fund investors, but they've really got a lot to like.

 Queens Road Small Cap Value (QRSVX)
Manager Steve Scruggs has done a great job of deep value investing at this fund, as its 4-star Morningstar Rating indicates. He's produced great results since the fund was launched in 2002. Its return on $10,000 since that time is $25,500 versus $20,100 for the average small-value fund. Yet, with an asset base of just $57 million, the fund has plenty of flexibility to buy the neglected small-cap names it covets.

Scruggs looks for companies dominating their niche, such as publisher Scholastic (SCHL), and throwing off a lot of cash. Interestingly, that has led him to a sizable tech weighting--27% of stocks--and a light financials weighting (10% of stocks). However, Scruggs is buying cheaper, more-mundane tech stocks than those such as  Google  (GOOG). He owns Tech Data (TECD), a big distributor of hardware and software to information technology departments, and Hurco (HURC), which makes software and systems for metal cutting.

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Russel Kinnel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.