2 Top-Performing Small-Value Funds

As the overall stock market tanked following President Donald Trump’s tariff announcement, small-value stock funds took a hard hit. However, with the Morningstar US Small Value Index currently trading at a 30% discount to its fair value estimate, there may be opportunities for long-term investors in funds with strong track records.

To screen for the top-performing funds in this category, we looked for those with the best returns over the last one-, three-, and five-year periods. Both names that passed the screen were actively managed.

• Boston Partners Small Cap Value Fund II BPSIX
• Invesco Small Cap Value Fund SMVSX

Small-Value Funds Performance

Over the last 12 months, small-value funds have declined 11.86%. On an annualized rate, small-value funds have declined 0.24% over the last three years and gained 15.24% over the last five years. That compares with the Morningstar US Market Index, which has declined 2.21% over the last 12 months, gained 5.06% per year over the last three years, and gained 15.19% per year over the last five years.

What Are Small-Value Funds?

Small-value portfolios invest in small US companies with valuations and growth rates below other small-cap peers. Stocks in the bottom 10% of the capitalization of the US equity market are defined as small-cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow).

Screening for the Top-Performing Small-Value Funds

To find the best small-value funds, we looked at returns data from the past one, three, and five years using data available in Morningstar Direct. We screened for open-ended and exchange-traded funds in the top 33% of the category using their lowest-cost primary share classes for those periods. We also filtered for funds with a Morningstar Medalist Rating of Bronze, Silver, or Gold. We excluded funds with assets under $100 million and analyst coverage that was not 100%. This left two funds.

Because the screen was created with the lowest-cost share class for each fund, some may be listed with share classes that are not accessible to individual investors outside of retirement plans, or they may be aimed at institutional investors and require large minimum investments. The individual investor versions of those funds may carry higher fees, reducing returns to shareholders. In addition, Medalist Ratings may differ among the share classes of a fund.

Boston Partners Small Cap Value Fund II

• Morningstar Medalist Rating: Silver
• Morningstar Rating: ★★★

Over the past year, the $475.8 million Boston Partners Small Cap Value Fund II fell 5.67%, while the average fund in its category fell 11.86%. The Boston Partners fund, launched in July 1998, has climbed 2.03% over the past three years and 16.32% over the past five.

“Manager George Gumpert brings a wealth of expertise to this strategy, having been with Boston Partners since 2000 and managing this strategy since late 2005. As a generalist, Gumpert has a broad understanding of small-cap stocks across various sectors, which fosters strong collaboration and productive debate within the team. He is well-supported by analysts Dave Hinton and Volkan Gulen, who have been with the firm since 2002 and 2013, respectively. Under Gumpert’s leadership, this small-cap team has delivered competitive performance across its three strategies, which include two small-cap and one smid-cap strategy. Boston Partners’ central analyst group also contributes to research and idea generation, essential for the team as it allocates to more than 200 distinct holdings. This group also provides a dependable resource in case of any departures.”

—Andrew Redden, analyst

Invesco Small Cap Value Fund

• Morningstar Medalist Rating: Silver
• Morningstar Rating: ★★★★★

Over the past year, this $6.3 billion fund has lost 8.50%, while the average fund in its category is down 11.86%. The Invesco fund, launched in February 2017, has climbed 8.47% over the past three years and 29.01% over the past five.

“Manager Jonathan Edwards’ extensive experience and increased conviction in his team position this strategy well for continued success. Edwards, who joined Invesco in 2001, has comanaged this strategy since 2010 and became lead manager in July 2018. He has delivered exceptional results both here and at Invesco Value Opportunities, a mid-cap fund with the same approach. Edwards is supported by a capable four-person team, including manager Jonathan Mueller. Mueller also joined Invesco in 2001, became a comanager in 2010, and has played a key role in the fund’s success, particularly with its standout industrials picks (where the strategy has a significant overweighting relative to the index). The team, which includes three analysts, has been working together for more than five years now. Their increased experience has fostered a more collaborative approach to idea generation, with impressive stock picks across the board.”

—Andrew Redden