What are you doing on May 19?
Make plans now to invest in the Third Avenue Small-Cap Value fund, which is reopening to investors after a two-year closure. The reason: Manager Curtis Jensen told The Wall Street Journal simply, "We're sitting on more ideas than capital."
Take notice
Jensen isn't the only market-beating small-cap value fund manager who's ready, willing, and able to put more money to work in superior small-cap stock ideas today. That's also the case with Ben Fischer of Allianz NFJ Small-Cap Value, who is opening his fund's doors to new investors for the first time since 2003.
Any time successful small-cap value investors like these are willing to take your money because they're sitting on that many ideas, you should sit up and take note. After all, it's the small-cap segment that produced the top 10 stocks of the past 10 years, and it's the small-cap value segment that generated the market's top returns of the past 75-plus years.
Why this is so
Small-cap value investors are excited because the segment has gotten Crushed -- capital C -- of late. The Russell 2000 value index, for example, is down nearly 15% over the past year -- and that's a fund that holds nearly 1,300 names. Large-cap growth, on the other hand, is essentially breaking even over the same time frame, with major S&P 500 Growth Index holdings such as Wal-Mart (NYSE: WMT), Google (Nasdaq: GOOG), ConocoPhillips (NYSE: COP), and Schlumberger (NYSE: SLB) up quite substantially.
You can imagine then that if 1,300 stocks in the historically best-performing sector have been sold off indiscriminately and are down an average of 15%, a good number of the most fantastic small companies in that fantastic sector are down way more than 15%.
For smart small-cap value investors, this is an enormous opportunity.
Will you take advantage?
We're also small-cap value investors at Motley Fool Hidden Gems, and we've taken advantage of recently depressed prices in the sector to recommend some incredible cheap stocks.
One of them -- Innophos (Nasdaq: IPHS) -- is a stock that, advisor Bill Mann noted, the market thought was too expensive, too cyclical, and too risky because of its seemingly onerous debt load. Bill disagreed, given that Innophos generates very healthy free cash flows (to service that debt) and sells a product (specialty phosphates) that shows up in everything from cookies to asphalt to toothpaste (meaning it has a diversified revenue base that wouldn't be affected by this looming recession). Indeed, the company's customer list is a Who's Who of blue chips, including Colgate-Palmolive (NYSE: CL) and Kraft (NYSE: KFT).
Thanks to a market that's starting to wake up to mispriced small caps, Innophos is up 89% in a little more than six months.
Can you do that?
Now, we won't always have that much success that fast with our Hidden Gems recommendations, but the experience with Innophos shows just how fast specific small-cap value opportunities can turn when the market stops selling off the sector indiscriminately. After all, when emotions run high in the market (as they do today), even the best companies' stock prices are assaulted.
It's precisely then when you should step in and buy, and by focusing on the quality of a company rather than on the performance of its stock, you'll know when the time is right. For Jensen and Fischer, the time is now right -- and that's why they want your money today. Given their track records, that's also why you should follow their leads and be thinking hard about putting small-cap value stocks in your portfolio as soon as possible.
Both of the aforementioned funds are fine options, but if you want some help picking over the very best individual stocks, consider joining Bill and the rest of our team at Hidden Gems. You can see all of our research and top picks for new money now by joining free for 30 days.
Click here for more information.
Tim Hanson does not own shares of any company mentioned. Wal-Mart and Colgate-Palmolive are Motley Fool Inside Value recommendations. Kraft is an Income Investor recommendation. Innophos is a Hidden Gems selection. The Fool's disclosure policy is open 24/7.
