Small value is a great diversifier if you have a growth-dominated portfolio. When the Apples and Amazons of the world get hit with a harsh correction, small value comes to the fore. This is also a good time to invest because nearly all small-value funds are open to new investors.
First Eagle Small Cap Opportunity is a newly minted medalist that’s worth a look. It’s run by Bill Hench, who brought his team over from Royce Opportunity. There they employed a deep-value strategy that produced strong returns, though results were certainly bumpy. The strategy is to find good turnaround plays with a potential catalyst for a rebound.
3 Great Small Value Funds
These small value funds earn a Morningstar Analyst Rating of Bronze or Silver.
- First Eagle Small Cap Opportunity (FESAX)
- LSV Small Cap Value Investor (LVAQX)
- Royce Small Cap Special Equity Invmt (RYSEX)
I also like LSV Small Cap Value LVAQX. It’s a Silver-rated quantitative fund run by an excellent team. The strategy focuses on the most proven predictors of company fundamentals and then adds in momentum factor to improve entry and exit points.
If you are looking for a defensive play, consider Royce Small-Cap Special RYSEX. Charlie Dreifus and Steven McBoyle scrutinize company balance sheets to avoid shady companies and find those best-equipped to ride out a recession. The fund typically performs best in down markets but lags a bit in rallies.
Russ Kinnel shares more fund picks in 3 Core Bond Funds to Take the Sting Out of a Bear Market.