A Small-Cap Fund for Cautious Investors

Christopher Franz: Bronze-rated Harbor Small Cap Value is a solid option for cautious investors. The fund, subadvised by Earnest Partners since its December 2001 inception, has many positive attributes, including an experienced lead manager, strong record of downside protection, and low fees.

Earnest CEO and firm founder Paul Viera is the fund’s only listed manager, but he is supported by an experienced 11-person investment team that makes collective decisions. The group uses a proprietary screening model to narrow their small-cap universe, using factor analysis to identify attractive stocks.

Viera and his team are patient when buying stocks and place a heavy emphasis on risk management and on a strict sell discipline. This low-turnover approach has led to a stable portfolio; over a quarter of the fund’s holdings have been owned for 10 years or longer.

The fund tends to lag during market rallies, but protects investor capital in down markets. This attribute has been highlighted by the fund’s recent performance. Its strong absolute gain of 21 percent through November 2016 lags the 26.5% gain of the Russell 2000 Value Index, but when the Index dropped 7.5% in 2015, the fund lost less than half as much. Combined with a low fee structure, the fund is a good option for investors seeking stable small-cap exposure.