3 Top-Performing Small-Blend Funds

Most small-company stocks fly under the radar of Wall Street research, making it a challenge for individual investors to build a diversified portfolio. The best small-cap stock funds can provide investors with efficient exposure to this difficult-to-navigate corner of the market. 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. Three funds made it through the screen.

Small-Blend Funds Performance

• Invesco RAFI US 1500 Small-Mid ETF PRFZ
• Nuveen Small-Cap Value Opportunities Fund NSCFX
• Virtus KAR Small-Cap Core Fund VSCRX

Over the last 12 months, small-blend funds have returned 5.35%. On an annualized rate, these funds have returned 9.60% over the last three years and 11.47% over the last five. That compares with the Morningstar US Market Index, which has returned 12.00% over the last 12 months, 18.10% per year over the last three years, and 15.14% per year over the last five years.

What Are Small-Blend Funds?

Small-blend portfolios favor US firms at the smaller end of the market capitalization range. Some aim to own an array of value and growth stocks, while others employ a discipline that leads to holdings with valuations and growth rates close to the small-cap averages. Stocks in the bottom 10% of the capitalization of the US equity market are defined as small-cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate.

Screening for the Top-Performing Small-Blend 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 Morningstar Medalist Ratings of Bronze, Silver, or Gold. We excluded funds with assets under $100 million and analyst coverage that was not 100%. This left three names.

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.

Invesco RAFI US 1500 Small-Mid ETF

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

Over the past 12 months, this $2.3 billion fund has gained 7.52%, while the average fund in its category is up 5.35%. The Invesco fund, launched in September 2006, has climbed 10.64% over the past three years and 13.72% over the past five.

“Invesco FTSE RAFI US 1500 Small-Mid ETF is a contrarian fund that excels when beaten-down stocks round into form, but its broad reach, low turnover, and competitive fee should keep it on track even when they do not. This index strategy sweeps in the broad small-cap market and weights constituents by a blend of fundamental metrics, breaking the link between stocks’ prices and portfolio weightings.

“When the index rebalances each March, it effectively doubles down on stocks whose prices have waned relative to their fundamentals and peers and trims exposure to those that have climbed. This approach can saddle the fund with stocks whose historical fundamentals don’t yet reflect their dim outlooks, and it can prematurely cut back on winning stocks. The benefits of this stubborn approach outweigh the drawbacks, though. By paring exposure to rising stocks and adding it to those that have tumbled, the fund mechanically buys low and sells high relative to fundamentals. This indiscriminate faith in battered companies should translate into market-beating returns if stock valuations revert to the mean. A wide scope allows this fund to benefit from rebounding small-cap stocks across the market. It also diversifies risk.

“Fundamental weighting gives this fund a mild value tilt, but including a heavy dose of growth stocks ensures that performance relative to its Russell 2000 Index Morningstar Category benchmark is not strictly a bet on value. This fund has compiled a stellar track record, bookending tepid performance with two red-hot stretches of returns. That pattern is by design. The fund is built to erupt during periods of mean reversion. It trounced the Russell 2000 Index by 35 percentage points over the six months following the global financial crisis, for instance, a stretch that served as early proof of concept. The fund may look lethargic at times, but its bursts of performance can tide it over during slower periods.”

—Ryan Jackson, senior analyst

Nuveen Small-Cap Value Opportunities Fund

• Morningstar Medalist Rating: Bronze
• Morningstar Rating: ★★★★★

This $231.3 million fund has climbed 9.85% over the past 12 months, outperforming the average fund in its category, which rose 5.35%. The Nuveen fund, launched in February 2013, has climbed 15.52% over the past three years and 15.62% over the past five.

“A flexible approach with prudent risk management gives Nuveen Small-Cap Value Opportunities an edge—at the right price. Comanagers Andy Hwang and Tom Lavia took over command of this strategy in 2019 when previous longtime manager Phyllis Thomas departed.

“Hwang and Lavia apply the same approach their predecessor did, with one minor improvement. The duo looks for companies offering favorable risk/reward profiles and catalysts that can improve their situations. They look for attractively priced companies that preferably have competitive advantages, low debt, and management teams with strong incentive structures. The managers are willing to go where they can find mispriced stocks, whether deep value or growth at a reasonable price. Their approach is still cautious, however, with an emphasis on risk management and downside protection.

“For example, Hwang and Lavia have reeled in the large sector bets that were common during Thomas’ tenure. Performance has gotten off to an impressive start since Hwang and Lavia took over in July 2019. From then through April 2025, the institutional shares’ 9.4% annualized return beat their prospectus benchmark Russell 2000 Value Index and the Russell 2000 Index by 3.8 and 3.9 percentage points, respectively. After a sluggish first two years, performance has excelled over the past four years. Their cautious approach shone in 2022’s down market, and the strategy has continued to thrive since then, thanks to strong stock-picking.”

—Tony Thorn, analyst

Virtus KAR Small-Cap Core Fund

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

Over the past 12 months, the $2.1 billion Virtus KAR Small-Cap Core Fund rose 7.08%, while the average fund in its category rose 5.35%. The Virtus fund, launched in November 2014, has climbed 16.43% over the past three years and 14.11% over the past five.

“Two skilled managers and a consistent, quality-oriented process make Virtus KAR Small-Cap Core a great option. Veteran managers Jon Christensen and Todd Beiley of subadvisor Kayne Anderson Rudnick, a wholly owned subsidiary of Virtus Investment Partners, have managed this strategy together since early 2009.

“The group now stands at eight dedicated analysts, with a good balance of newer and more-established analysts, and it has a strong track record of excellent stock-picking. The team applies a patient approach centered on quality and conviction. They look for attractively valued small-cap companies whose competitive advantages help generate and maintain strong returns on capital. They want companies with competitive edges in the form of cost advantages, customer stickiness, network effects, or a degree of market control. When the managers find one of these companies, they invest for the long term and with conviction; they build a concentrated portfolio of 25-30 stocks of their top ideas, and annual portfolio turnover tends to be less than 20%. Aside from a limit of 10% of assets in a single stock, the portfolio is loosely constrained; it has no limits on sector weightings, for example, allowing for a 49.3% weighting in industrials in June 2024.

“This approach has led to stellar results. Since Beiley came on board in March 2009 through August 2024, the institutional shares’ 18.5% annualized return easily outpaced its best-fit benchmark, the Russell 2500 Index, by 4.1 percentage points, despite above-average fees. This great performance attracted massive inflows in the mid-2010s, which prompted the mutual fund’s closure to new investors in 2018. The strategy’s $12.8 billion asset base today makes it less nimble, and its ownership stake in some companies has swelled to potentially unwieldy levels. But the managers have continued to deliver great results in recent years, even with a hefty asset base.”

—Tony Thorn