Value stocks are stocks that tend to trade at a price that is lower than its fundamentals (i.e. earnings, book value, Debt-Equity). It is common for some investors to invest in value funds for the income or yield. However, not all value funds are comprised solely of companies that primarily use their earnings to pay dividends. Investors interested in choosing value funds for yield, should be sure to check the mutual fund yield. The mutual fund yield is the dividend payments divided by the value of the mutual fund’s shares. Meanwhile, small-cap funds are a good choice for investors seeking diversification across different sectors and companies. Investors with a high risk appetite should invest in these funds. Small-cap funds generally invest in companies having market cap lower than $2 billion. The companies, smaller in size, offer growth potential and their market capitalization may increase subsequently.
Below we will share with you 4 best rated small value mutual funds. Each has earned either a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all small cap value funds, investors can click here to see the complete list of funds.
Homestead Small Company Stock (HSCSX) seeks long-term capital appreciation. The fund invests a lion’s share of its assets in companies having market capitalizations identical to those included in the Russell 2000 Index. It focuses on acquiring common stocks of companies that are believed to be undervalued depending on factors including earnings valuations and debt ratios. The small cap value mutual fund has a three-year annualized return of 18.3%.
As of December 2014, this fund held 59 issues with 4.87% of its assets invested in iShares Russell 2000 Value.
Brown Advisory Small-Cap Fundamental Value Investor (BIAUX) invests a major portion of its assets in small companies having market capitalizations below $4 billion. The fund invests in equities including common stock, preferred stock and stock futures contracts. It may also invest in ADRs, REITs and ETFs. The small cap value mutual fund has a three-year annualized return of 19.1%.
J. David Schuster is the fund manager and has managed this fund since 2008.
Federated Clover Small Value A (VSFAX) seeks capital growth over the long run. The fund invests heavily in small cap companies having market capitalizations within the range of those listed in the Russell 2000 Index. It generally invests in value stocks of domestic firms banking on favorable fundamentals including price-cash flow, price-earnings and price-book value ratios. The fund may also consider other securities, which include futures and options; and ETFs for potential investment. The small cap value mutual fund has a three-year annualized return of 13.8%.