3 Top-Performing Small-Value Funds

Building a portfolio of small-cap stocks can be challenging for everyday investors, as information can be scarce and the stocks can be difficult to trade. This can be doubly true for small-cap value stocks, which may fly under the radar more than often headline-grabbing growth stocks. Small-cap value funds can offer investors diversified access to this space and bypass these issues.

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-Value Funds Performance

• Diamond Hill Small Cap Fund DHSYX
• Invesco Small Cap Value Fund SMVSX
• Vanguard S&P Mid-Cap 400 Value Index Fund VMFVX

Over the last 12 months, small-value funds have returned 1.7%. On an annualized rate, small-value funds have returned 9.51% over the last three years and gained 14.15% over the last five years. That compares with the Morningstar US Market Index, which has returned 12.35% over the last 12 months, gained 18.82% per year over the last three years, and gained 15.22% 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 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.

Diamond Hill Small Cap Fund

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

Over the past 12 months, the $205.6 million Diamond Hill Small Cap Fund rose 5.56%, while the average fund in its category rose 1.70%. The Diamond Hill fund, launched in December 2011, has climbed 14.31% over the past three years and 15.78% over the past five.

“Diamond Hill’s solid management and approach make it a sound choice. Aaron Monroe has settled in as the strategy’s lead manager. He has been coming up with buy, sell, and portfolio adjustment ideas as a listed manager since February 2017, first with former marquee manager Tom Schindler, then with Diamond Hill Small-Mid Cap manager Chris Welch from February 2019 to March 2023 when he officially took over as lead.

“Monroe has put his stamp on the strategy without departing from the house philosophy. Schindler tended to hold a lot of cash and mid-cap stocks, and sometimes bonds. Monroe, first with Welch and now on his own, doesn’t hold much cash and has moved much farther down the market-cap ladder. At the end of May 2025, the fund had 67% assets in micro-caps, more than the Russell 2000 Value Index’s 62% stake and nearly 80% of its small-value Morningstar Category rivals.

“Morningstar attribution shows that some of the fund’s best picks have been among its smallest-cap holdings. The fund uses the same process regardless of the market cap. Like other Diamond Hill managers, Monroe relies on fundamental analysis to find stocks with share prices under their estimated intrinsic values. He likes companies with skilled leaders, durable competitive advantages, and stable cash flows, but will buy cyclical companies with depressed quality measures, such as returns on assets and returns on equity, if their share discounts are appealing. Despite its large, risky micro-cap stake, this is a solid option.”

—Dan Culloton, senior principal

Invesco Small Cap Value Fund

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

The $6.8 billion fund has climbed 7.17% over the past 12 months, outperforming the average fund in its category, which rose 1.70%. The Invesco fund, launched in February 2017, has climbed 22.07% over the past three years and 26.52% 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).

“Edwards employs a well-structured approach aimed at identifying attractively priced stocks that have often fallen out of favor with the market. The team excels at uncovering ideas that the market has temporarily overlooked owing to what it perceives as short-term concerns.

“A 30-variable qualitative scorecard guides the team’s research, enabling it to monitor secular trends, industry controversies, and business cycle patterns. While gauging business cycles can be challenging and take time to play out, the scorecard promotes consistency—an important feature for a strategy that can experience significant sector and stylistic swings. Edwards has delivered spectacular results since taking over as lead manager in July 2018. The A shares’ 14.6% annualized gain through July 2024 trounced the Russell 2000 Value Index’s 6.7% and typical small-value Morningstar Category peer’s 7.6%.”

—Andrew Redden, analyst

Vanguard S&P Mid-Cap 400 Value Index Fund

• Morningstar Medalist Rating: Gold
• Morningstar Rating: ★★★★★

Over the past 12 months, the $1 billion Vanguard S&P Mid-Cap 400 Value Index Fund rose 8.19%, while the average fund in its category rose 1.70%. The Vanguard fund, launched in November 2010, has climbed 11.74% over the past three years and 15.11% over the past five.