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Small and mid-cap fund recommendations

edited February 2013 in Fund Discussions
Earlier this month, I did analysis of buy-and-hold portion of my portfolio and realized that I need to
increase my exposure to small and mid-cap funds. Currently, I hold RYSEX and two ETFs
(IJH and IJR) in this space, but was wondering if there are better options. I like funds with lower downside,
even at the expense of top percentile returns. I have consolidated my taxable holdings at Schwab and prefer
funds available there, but can make an exception. The other nice to have characteristics are low turnover, lower expenses,
at least 3 years of history with current manager and comfort with the firm's investment philosophy.

Some funds I am looking at are FLPSX, DHSCX, HFCSX, HRVIX, PRNHX. Any ideas/thoughts you have
are most welcome. Thank you.


  • For what interest it holds, here are the smaller caps that we've profiled:

    Aegis Value (AVALX) - microcap value, absolutely cratered in the meltdown, blew the roof off since

    Artisan Small Cap (ARTSX) - under management by the Mid-cap team. GARP-y, risk-aware, sensible.

    Huber Small Cap Value (HUSIX) - small cap value, experienced manager, top of the chart returns

    Lockwell Small Cap Value Institutional (LOCSX) - okay, maybe $100,000 minimum is a little rich

    Mairs and Power Small Cap Fund (MSCFX) - uhh, quintessential Minnesota firm. High insider ownership, negligible turnover, focus on what they know.

    Pinnacle Value (PVFIX) - small value, big cash stake which really mutes risk but looks terrible in strongly rising markets, might be worth the trade-off

    RiverPark Small Cap Growth (RPSFX) - it's liquidating.

    SouthernSun Small Cap Fund (SSSFX) - hmmm, "SMID-cap" core with its bets evenly placed across the valuation spectrum, seems to favor larger small caps and smaller midcaps, top 1-2% returns, about 50% of the average turnover. You might even look at the other fund, smaller and also SMID cap.

    Vulcan Value Partners Small Cap Fund (VVPSX) - much of the same profile as SouthernSun

    Walthausen Small Cap Value Fund (WSCVX) - great fund, soft-closed now, with a new Focused sibling.

    For what it's worth,

  • edited February 2013
    You might check out WEMMX if you are open to considering a microcap stock fund. M* categorizes it as small blend. Its NTF at Fidelity. It offered good relative downside protection during the 2008 to 2009 sell off and has performed well since then. Other share classes (with disadvantages) include WMMAX and WMMCX.

    A mid cap fund you might look at is WPFRX. Its also NTF at Fidelity.

    Those two funds fill the general focus mid and small cap slots in my portfolio. Both funds have managers with over a decade on the job. Expenses may be too high for you?????
  • Reply to @Mark: Closed.
  • edited February 2013
    PARMX is an OE mid-cap you might take a look at; nothing to add to previous posters' suggestions about small-cap OEFs. If you like the low volatility-themed ETFs that have been the talk of the town over the past year or so (like SPLV and USMV), PowerShares is supposed to be coming out with U.S. small-cap and mid-cap versions; not sure of the timing.

    P.S. I think HRVIX is closed.
  • Reply to @David_Snowball: I stand corrected. For some reason I thought that it closed at the end of February.
  • edited February 2013
    How about DEFIX (Delafield)?

    I have a good 401k option in the MC value space....TRMCX (TRPrice Mid-Cap Value). To replace it in when I cash out, I've targeted DEFIX. This doesn't get alot of fanfare or press...not sure why, since it seems their results are pretty impressive. Dennis Delafield may retire before I do, so perhaps there's THAT to consider.
  • Thanks everyone for your detailed advice. All of you have given me a lot of options to research.
  • Reply to @AndyJ:

    HRVIX is closed.
  • Reply to @David_Snowball:

    LOCSX is available at Scottrade for very low minimums in taxable and non-taxable accounts plus $17 T/F.
  • msf
    edited February 2013
    I posted awhile ago on MCV funds - nothing perfect, the ones I identified as interesting and lower risk were:
    - JPMorgan Mid Cap Value A (JAMCX - Schwab OneSource, closing at end of month),
    - American Century Mid Cap Value (ACMVX) (NTF many places),
    - Victory Established Value (VETAX - Schwab OneSource), and
    - Nicholas Equity Income (NSEIX - TF fund).

    On the blend/growth side of mid cap, you might look at Principal MidCap Blend A (PEMGX - Schwab OneSource) and for small/mid cap growth, Janus Triton T (JATTX) (NTF many places). These all meet your primary criterion - moderated risk at the possible expense of lagging in rallies. Most have moderate to low expenses (except JAMCX), and low turnover (except ACMVX).

    There are a couple of risks with Nicholas - a concentrated portfolio, and an aging lead manager (MBA in 1955; you do the arithmetic).
  • Take a look as CCASX and BCSIX
  • Two funds that I have found that meet your criteria for limited exposure to the downside would be JATTX- Janus Triton and in the midcap space, AKREX-Akre Focus fund.
  • edited February 2013
    PYSYX should be a mid-cap value contender.
  • Another FWIW, but we do not insist managers stay in a box. If they wander small-to-mid, even an occasional large company, that's ok. Same with whether M* says they are value,blend or growth. I don't trust that pigeonholing, anyway. Here are the ones we are using, depending on risk profile of the client:

    ARTMX Artisan Mid Cap
    DEFIX - Delafield
    IYMIX - Ivy Mid Cap Growth
    UMBIX - Scout Mid Cap
    BSCFX - Baron Small Cap
    IYSIX - Ivy Small Cap Growth
  • Reply to @BobC:
    M*'s methodology also doesn't care whether funds occasionally wander. The classification of the fund lags the classification of the portfolio to allow for such excursions. More specifically, "portfolios are placed in a given category based on their average holdings statistics over the past three years." Basic data smoothing.

    In addition, M* just (as of Jan 31) implemented a policy of adjusting the ratings of funds much more quickly - as of the end of the month in which a significant restructuring of a fund took place. That's not the gradual drift of a fund, but only when there's an abrupt change, most of the portfolio is turned over, and the new portfolio is "substantially different" in character (whatever that means) from the old portfolio.
  • Reply to @msf: Thanks for the mention of ACMVX. We have a fairly substantial account at American Century, and I've been looking for a place to put some of the cash that has been removed from various AC Bond Funds over the past few months. Will watch ACMVX with an eye to purchase on a market pullback.
  • I like HSCSX.
  • Reply to @msf: What you say is true, msf. But for those of us who are style-box agnostic, the fund comparisons and rankings are deceptive when M* forces a fund into one of their created boxes when it does not fit in a box. I have spoken with a number of M* people who recognize this flaw and admit it is a problem. But since M* invented the boxes and has made a lot of money on them, it is not likely we will see much change in how they classify funds. And, as we all know, M* is the big kahuna of fund data.
  • Reply to @BobC: Kinda "Close enough for Government Work".
  • Thanks again, everyone! I am indeed fortunate to learn from a very helpful group.
    It will take me at least couple of weeks to go through your suggestions. My initial quick glance has identified at least a handful of funds that meet my broad criteria.
    Have to take a deeper look and research during the weekends.
  • Art
    edited February 2013

    Intrepid Small-ICMAX-turnover 68%- 3yr deviation 11.57%-3 yr return 11.13%-E.R. 1.41
    Queens Road Small-QRSVX-turnover- 14% -3yr deviation 13.96%-3 yr return 10.42- E.R. 1.27

  • Dear Kaspa,

    There is one additional consideration which may be important. Each month GMO publishes its projections of the future real returns of different asset classes for the next 7 years. Not surprisingly, the latest issue is negative on bonds, which are projected to return in average -1.1% per year, with an exception of EM bonds, which may return +1.6% per year.

    In average, US stocks are expected to return +0.1% per year, and small cap stocks are expected to return -0.8% per year, just like bonds but with much greater risk. An exception from this rule is provided by US high quality stocks, expected to return +5.2% per year, and international stocks, especially EM stocks.

    These estimates were made on Dec. 31, 2012, and after that small cap stocks rallied. I expect that the next GMO projection for small cap stocks will be even more negative. Usually their 7 year projections were fairly accurate. This does not mean that one should not invest in small cap stocks, especially if you can make a happy guess and find a proper fund which will beat the index during the next 7 years (e.g. WSCVX is crazy good, but it is closed now), but perhaps you may take these general recommendations into account when constructing your portfolio.

  • edited February 2013
    Hello Kaspa and others,

    Four of the small and mid cap funds that I own in the Growth Area of my portfolio are as follows:

    PCVAX, Allianz NFL Small Cap Value A, has been one of my holdings for a good number of years. I have linked its Morningstar Report for those that would like to take a more detailed look. Note, it is a closed for new purchase.

    IIVAX, Transamerica SM MID Cap Value A, This is another small/mid cap holding that has about ten percent, or so, of its assets in large caps. It has been one of my holdings off and on for a good number of years. Its Morningstar report is linked below for those that would like to take a closer look.

    PMDAX, Principal SM MID Cap Div Income Fund A, This is a more recent holding for me and one of my larger holdings in the Growth/Small-Mid Area of my portfolio. It is a good dividend paying fund that I have been well pleased with thus far. I have linked its Morningstar Report for those that would like more details.

    KSDVX, Keeley Small Cap Div Value Fund A, This is also a more recent holding in this area and pays out an above average dividend for a small cap fund. Its Morningstar report is also linked for your review.

    Good Investing,
  • msf
    edited February 2013
    Reply to @BobC: The problem is that in order to do comparisons, one has to have something to compare to. Every approach has its shortcomings. Compare against an index? That's little different from putting the fund into a box. Compare against a hypothetical portfolio that behaves "the same" way as the fund (I believe that's what S&P does), and you measure at best only the issue selection and not the sector selection. And so on.

    Best example I know of is a fund I believe you like - Fidelity Canada (FICDX). Clearly not a peer of diversified (across countries) international large cap growth funds. But what should one compare it with? I can find only one other open end Canadian fund - not statistically meaningful. Nevertheless, if we do the comparison, Fidelity falls far short - Dynamic Canadian Equity Income (DWGIX) is blowing it away. Or if we use the S&P TSX Composite Index as a benchmark (or somewhat equivalently, EWC), we see Fidelity performing respectfully, but not deserving of the raves it gets simply because it's in the "wrong" box.

    Pigeonholing is a symptom, not the problem.
  • edited February 2013
    The more I examine Rocky Peak Small Cap Value RPCSX, the more I like it. Trust you will add it to your list for consideration. It was featured in MFO's first Elevator Talk last month. It's up 10% YTD after modest start last year.

    Like you, I like funds that protect downside. Charlie Dreifus has been masterful with Royce Special Equity RYSEX, so congratulations on holding that now closed fund. I would not let that one go until Mr. Dreifus decides to retire. Like Maurice said recently about another world class fund (VWELX), RYSEX is "a buy and die fund."

    FWIW, I do not think your two iShares ETFs match your objectives...IJH and IJR incurred -36% and -31% loses respectively in 2008 and have fairly high downside deviations.

    Of the funds mentioned by the folks above, as well as other notable funds on the MFO board, here are the open, no load, small-mid cap, low volatility funds that I like the most, oldest to youngest:

    TETON Westwood Mighty Mites WEMMX
    Pinnacle Value PVFIX
    Intrepid Small Cap ICMAX
    Putnam Equity Spectrum Y PYSYX
    HighMark Geneva Small Cap Gr Fid HGFSX
    Keeley Small Cap Dividend Value I KSDIX
    Vulcan Value Partners Small Cap VVPSX
    Principal Small-MidCap Di Inc Inst PMDIX
    Cortina Small Cap Value CRSVX
    Rocky Peak Small Cap Value RPCSX
    Perimeter Small Cap Value I PSCVX
    Bernzott US Small Cap Value BSCVX

    I believe all but PSCVX are offered at Schwab, although three (PYSYX, KSDIX, PMDIX) are institutional class. A few (WEMMX, ICMAX, CRSVX) are No Load No Fee.

    Here are their attendant lifetime stats:


    All have beaten the market over their lifetimes. All have handled downside well. But only three are old enough to experience a 2008: WEMMX, PVFIX, and ICMAX. So, please keep that important qualifier in mind.

    ICMAX has lost a bit since the departure of Eric Cinnamond, but still tracks to form pretty well, as seen below:


    My two cents...please let us know what you actually decide.
  • FWIW, WEMMX has a $250 minimum at TDA.
  • Reply to @msf: You are right about FICDX. We sold that last year and moved those dollars to DWGIX, because we liked the unorthodox investment style as well as the emphasis on dividend. Yes, we have to make comparisons somehow before we select a manager and as we monitor once we have made a selection. But we make every attempt to compare managers who are similar. One example that comes to mind is M*s lumping AQRIX, IVAEX, PAUIX, and TIBIX in the same category. These funds are not alike in their strategies at all. Their managers approach investing from very different mandates. But woe to the average investor who picks one of these over the other because of performance comparisons or rank in category or expenses, or volatility, or risk, or any other ranking, WITHOUT knowing how differently the funds are managed. Or how about VWELX, RPBAX, FPACX, and OAKBX all stuck in M*s 'moderate allocation' category? And then there is MFLDX, FVALX, and HSGFX in 'long-short equity'. Talk about very different approaches. Just using the comparisons in M* could lead one to MFLDX, even though FVALX has a much lower risk profile for a very good reason. I'm just trying to say that investors need to do a whole lot more than compare funds in the same M* category or the same style box to make their decisions. Prospectuses and SAIs are there for a reason. Thanks for the chance to clarify, msf!
  • Another...fwiw,

    I'd wait until the end of March for Artisan Global small cap. Artisan has a very good history with their funds & told me this new fund will open at the end of March. I will be buying some myself.

  • New GMO 7-Year Asset Class Return Forecasts as of January 31, 2013:

    US small cap stocks expected yearly real return - 1.7%, much worse than bonds, with much greater risk. Other equities: US high quality + 4.2%, International large + 3.1%, International small +3.3%, EM +5.4%
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