A small-cap value fund is a good choice for investors seeking diversification across sectors and companies, and focusing on gaining exposure to stocks that are trading at a discount. Those with a high-risk appetite should invest in these funds.
Small-cap funds generally invest in companies having market-cap of less than $2 billion. The companies, smaller in size, offer growth potential and can subsequently see an increase in market capitalization.
Meanwhile, value stocks are those that tend to trade at a price lower than their fundamentals (i.e. earnings, book value, debt-equity). It is a common practice to invest in value funds for income or yield.
However, not all value funds solely comprise companies that primarily use their earnings to pay out dividends. Investors interested in choosing value funds for yield should surely check the mutual fund yield, which is the total dividend payout divided by the value of the mutual fund’s shares.
Below we share with you three top-ranked, small-cap value mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future.
Small-Cap Value Mutual Funds to Buy for High Returns: Vericimetry U.S. Small Cap Value Fund (VYSVX)
Vericimetry U.S. Small Cap Value Fund (MUTF:VYSVX) seeks appreciation of capital for the long run. The fund invests a large chunk of its assets in domestic small-cap value companies.
Before investing in any company, the fund adviser uses a full-market capitalization methodology to determine the market cap of the company. Vericimetry U.S. Small Cap Value Fund has one-year annualized returns of 7.5%.
VYSVX has an expense ratio of 0.61% compared with the category average of 1.43%.
Small-Cap Value Mutual Funds to Buy for High Returns: Prudential QMA Small-Cap Value Fund (TSVAX)
Prudential QMA Small-Cap Value Fund (MUTF:TSVAX) invests a bulk of its assets in equity securities of small-cap companies whose market-cap falls within the range of the Standard & Poor’s SmallCap 600 Index or the Russell 2000 Index.
The fund may also invest around one-fourth of its assets in real estate investment trusts. Prudential QMA Small-Cap Value A has one-year annualized returns of 3.5%.
As of March 2018, TSVAX held 304 issues, with 1.22% of its assets invested in MGIC Investment Corp.
Small-Cap Value Mutual Funds to Buy for High Returns: Vanguard Small Capitalization Value Index Fund (VISVX)
Vanguard Small Capitalization Value Index Fund (MUTF:VISVX) focuses on tracking the performance of its benchmark index, CRSP US Small Cap Value Index.
The fund uses an indexing investment approach in order to track its benchmark index’s performance and invests in value stocks of domestic small-cap companies. Vanguard Small Cap Value Index Investor has one-year annualized returns of 7.3%.
William A. Coleman is one of the fund managers of VISVX since 2016.
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