Each year, Kiplinger’s Personal Finance releases its list of top-performing mutual funds in 11 different categories. And while Foolish investors know that past performance isn’t the only thing that should be considered when buying a fund, past results do give us a clue as to how the fund may perform in the future. In this three-part series, I’ll look at Kiplinger’s best-performing funds in three popular asset class categories and parse out which funds investors might want to consider buying and which ones they might want to stay away from. Yesterday we covered large-cap funds -- today small-caps are on deck.
Best of the best
From Kiplinger’s, here are the 10 top-performing funds in the small-cap category over the past 10 years (through July 31, 2011):
|
Fund |
10-Year Annualized Return |
|---|---|
| Royce Value Plus (RYVPX) | 12.35% |
| Heartland Value Plus (HRVIX) | 12.32% |
| Bridgeway Ultra-Small Company (BRUSX) | 11.84% |
| Satuit Capital Micro Cap (SATMX) | 11.77% |
| RS Partners (RSPFX) | 11.62% |
| Transamerica Small/Mid Cap Value (IIVAX) | 11.31% |
| Royce Select I Investment (RYSFX) | 11.18% |
| Allianz NFJ Small Cap Value (PCVAX) | 11.01% |
| Lord Abbett Small Cap Value (LRSCX) | 10.91% |
| RidgeWorth Small Cap Value Equity (SASVX) | 10.87% |
Source: Kiplinger's.
While I always encourage investors to judge funds by their long-term returns rather than short-term results, you need to look beyond simple returns to get a better idea of whether or not a fund is worth buying.
Limited access
Surprisingly, I’m not super-enthusiastic about any of these funds. Of the 10 funds, five are closed to new investment, which means that outside investors can’t buy the fund anymore. This is a common yet unfortunate occurrence in small-cap land, as the best-performing funds attract inflows, often leading management to close a fund to preserve its ability to invest in smaller companies.
Small-cap funds also tend to be more expensive than their larger-cap counterparts. According to Morningstar data, the average small-cap blend fund has a 1.41% price tag. Unfortunately, many of the funds on this best-performers list are more expensive than average, and in some cases, much more expensive. Lastly, a number of these funds sport front-end loads, or fees that investors pay just for the privilege of owning the fund. I always recommend that investors avoid load-bearing funds because there are other options out there without such an onerous fee. Taken together, all of the funds on this list have some strikes against them:
|
Fund |
Strikes Against It |
|---|---|
| Royce Value Plus (RYVPX) | Somewhat expensive (1.44%) |
| Heartland Value Plus (HRVIX) | Closed; newer managers in 2006 and 2007 |
| Bridgeway Ultra-Small Company (BRUSX) | Closed; somewhat volatile micro-cap fund |
| Satuit Capital Micro Cap Fund (SATMX) | Very expensive (1.95%) |
| RS Partners (RSPFX) | Closed; expensive (1.53%) |
| Transamerica Small/Mid Cap Value (IIVAX) | Somewhat expensive (1.47%); has a front-end load of 5.50%; new manager earlier this year |
| Royce Select I Investment (RYSFX) | Very, very expensive (2.37%) |
| Allianz NFJ Small Cap Value (PCVAX) | Closed; front-end load of 5.50% |
| Lord Abbett Small Cap Value (LRSCX) | Closed; front-end load of 5.75% |
| RidgeWorth Small Cap Value Equity (SASVX) | Expensive (1.52%); front-end load of 5.75% |
Source: All fund data from Morningstar.
Some of these funds are very well-run, but because of their high expenses or the fact that they are closed to new investment, I think there are more compelling small-cap options out there for just about any investor.
Looking further afield
One such option is Royce Total Return (RYTRX). This small-cap gem ranks in the top 22% of its peer group over the past decade with a 6.8% annualized return. The team, headed by company founder Chuck Royce, looks for high-quality small- and micro-cap companies with healthy balance sheets and stable earnings. Management has been finding a lot of opportunity in the financial sector, snapping up stocks that are trading at attractive valuations in that sector. Low P/E names such as insurers Reinsurance Group of America
Another solid, if not dazzling, choice is Vanguard Explorer (VEXPX). This fund is subadvised by six different asset managers, including Vanguard’s own quantitative equity group. With nearly $10 billion in net assets, this is one of the biggest small-cap funds around. But spreading assets among the different managers helps, and the fund still retains a solidly small-cap profile. Not surprisingly for a small growth fund, tech names are a big attraction here, and include scientific instrument manufacturer Bruker
Stay tuned for tomorrow’s look at the best-performing foreign funds of the past decade.
