Smaller-sized companies make for risky investing, but they do have the potential for rapid sales growth and better gains than bigger, more established corporations. After all, Google, Facebook and Alibaba were small companies at one point.
Small-cap value funds are one way for less experienced investors to get some exposure to these companies, according to Zack’s Investment Research.
“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 discounts,” the firm said in a Seeking Alpha blog
. “Investors with a high-risk appetite should invest in these funds.”
Small-cap funds typically buy stocks in companies with a market value of less than $2 billion. Value stocks tend to trade less expensively than other companies in comparing their stock prices with their profits, debt levels and book value.
“It is a common practice to invest in value funds for income or yield,” according to Zack’s.
“However, not all value funds solely comprise 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, which is the dividend payout divided by the value of the mutual fund's shares.”
4 Small-Cap Value Fund Picks
CornerCap Small Cap Value (CSCVX)
: This fund “The CornerCap Small Cap Value fund returned 9.4 percent over the past one year. As of September 2015, CSCVX held 221 issues with 0.69 percent of its assets invested in Fidelity Southern Corp.”
Perkins Small Cap Value Fund A (JDSAX)
:The fund “The Perkins Small Cap Value A fund returned 5.7 percent over the past one year. JDSAX has an expense ratio of 1.03% as compared to the category average of 1.23 percent.”
Northern Small Cap Value (NOSGX)
: Robert Bergson has overseen this fund since 2001. It “may focus on a particular sector including financial services. NOSGX may invest in companies that may not provide any dividend. The Northern Small Cap Value fund returned 5.6 percent over the past one year.”
Queens Road Small Cap Value (QRSVX)
: Queens Road seeks “to provide capital appreciation by investing the majority of its assets in equity securities of companies. The Queens Road Small Cap Value fund returned 6.3 percent over the past one year.”
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