Small-Cap Funds for the Long Haul
Our Premium Fund Screener reels in some of the best.
Small-cap funds have left their bigger brethren in the dust this year. Among our diversified domestic-equity fund categories, small-growth leads the way, with the small-blend and small-value peer groups following close behind. It's an impressive run, to be sure, particularly given that smaller fare held up relatively well during the protracted bear market, too.
As savvy investors know, however, what goes up tends to come down. A hot category can turn cold quickly, and last year's goat can become this year's hero faster than you can say "missed opportunity." Indeed, during the growth craze of the late 1990s, the market's larger names were generally the big winners.
Performance-chasing and market-timing are losers' games, of course, and not even professional stock-pickers can manage to get them right with any degree of consistency. So, we think most investors will be best served by having a well-diversified portfolio that provides exposure to a broad swath of the market's industries, styles, and capitalization ranges.
We'll focus on that last item for this week's Premium Fund Screener search, choosing criteria that will uncover small-cap offerings that could anchor the portion of your portfolio reserved for smaller fish. We'll screen for exemplary performance over a meaningful length of time (five years) and ensure that the fund hasn't taken on excessive risk to achieve its returns. Managerial tenure is also key, so we'll check to see that the team responsible for the fund's impressive track record is still in charge. We'll also screen for below-average costs and ensure that the funds' initial minimums aren't prohibitive.
Click here to run this screen yourself.
Lots of great funds made the grade, and analyst highlights for three of them appear below. First, however, a couple of caveats:
This screen doesn't focus on a particular category (such as "small-growth" or "small-blend") but rather on where a fund's current portfolio falls in the equity style box. (Click here for more on the difference between Morningstar category and style box designations.) Depending on your goals and risk tolerance, you may want to add category criteria to the mix. To do that, simply click the back arrow below the results list and select Fund Category from the drop-down menu.
Second, although the Premium Fund Screener is a powerful tool, it can't provide insight into a manager's stock-picking strategy. After you've whittled down the universe of mutual funds to just those that meet the exacting criteria included in your screen, be sure to check out Morningstar's Fund Analyst Reports to continue your research.
And now, on to the highlights:
Fidelity Low-Priced Stock (FLPSX)
Size hasn't slowed this fund, which is one of the largest smaller-cap portfolios around. It has put up good numbers, thanks to solid stock-picking. It holds hundreds of names, keeping risk in check, and its expenses are also well below the small-cap average.
Vanguard Explorer (VEXPX)
Thanks to wide diversification, deft stock selection, and a big expense-ratio advantage over rivals, this fund has amassed a fine record. Though it tends to lag when racier fare, such as technology, leads the way, the fund has been dependable over the long haul, while volatility has been mild. All told, it's a solid option.
Sentinel Small Company A (SAGWX)
This fund's manager looks for reasonably priced small companies with strong market positions. His focus on value places the fund on the cusp of the small-blend and small-growth categories.
Shannon Zimmerman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.