Russel Kinnel is director of manager research for Morningstar.
In the table below, I list funds with total asset bases below the median closing point and below the average closing point. All of them are Morningstar Medalists.
I'll share a few thoughts on the subset of funds that are below the median and available through No Transaction Fee networks.
Harbor Small Cap Value
is a strong-performing fund run by Atlanta-based Earnest Partners. We upgraded the fund to Silver in September. Manager and firm founder Paul Viera runs a proprietary model that examines success characteristics of various industry sectors to find what figures will point to winning names. Then market and macroeconomic conditions are factored in, and fundamental analysis winnows the field to a portfolio of about 60 stocks. The fund charges 0.87% for "institutional" shares that have a $50,000 minimum and 1.24% for investor shares that have a $2,500 minimum.
's style has been out of favor, as you can see from its pedestrian five-year results. Cyclical stocks and basic materials have held the fund back, but it still has a strong long-term record, so we've kept the faith. Rick Lane and his team like solid businesses that are trading cheaply because of some bad news. But it's an approach that requires patience of fund manager and fundholder alike.
PNC Multi-Factor Small Cap Core
is available without a load in most fund supermarkets. It's a $400 million small-growth fund. This is a quantitative fund run by Hitesh Patel and Paul Kleinaitis. They use a multifactor model that they developed in the late 1990s and have refined in the years since. The model factors in fundamentals, valuations, and momentum to come up with a stock portfolio in the range of 100–130 companies.
The fund returned 8.6% annualized from its 2005 inception through September 2017. That topped the peer group's 7.6% annualized return but was a hair behind the 9.1% return for Russell 2000 Growth Index. However, the fund looks even better on a risk-adjusted basis, as it has had above-average returns with below-average risk. The fund charges 1.16% for its A shares.
Alger Small Cap Focus
is an impressive growth fund run by Amy Zhang, who was formerly a key contributor to Brown Capital Management Small Company
. Zhang applies a similar emphasis on companies with strong growth prospects and differentiated products. Things have gone well since she took over in February 2015, but it's early. The fund's fees are decent for a $560 million retail fund. It had been on the pricey side, but the A shares' expense ratio has fallen from 1.60% to 1.20%.
Nuveen NWQ Small-Cap Value
has been a model of consistency. The fund outperformed its Morningstar Category and benchmark for each calendar year from 2009 through 2016. In 2017, that streak looks likely to be broken, but the fundamental case is still strong. Lead manager Phyillis Thomas and comanager Andy Hwang apply the HOLT framework to small-cap land. That means they seek companies that outearn their inflation-adjusted cost of capital. They are wary of debt and open to a wide array of industries. This year, a few holdings like Carrizo Oil & Gas and Treehouse Foods have held the fund back. But it still has just $750 million in assets with some capacity to spare.
Best of the Rest
There are two very appealing Silver medalists in the second group of NTF-available funds that are above the median closing asset level but below the average closing point. Conestoga Small Cap
is a low-turnover growth fund that emphasizes return on equity. Royce Special Equity
is a defensive value fund run by Charlie Dreifus. It's likely to lag in rallies but looks great over a full market cycle.