Small-cap funds are good choices for investors seeking diversification across different sectors and companies. Investors with a high-risk appetite should pick these funds. Small-cap funds generally invest in companies with a market cap lower than $2 billion. The companies, though smaller in size, offer growth potential and their market capitalization may increase subsequently.

Meanwhile, value stocks tend to trade at a price lower than their fundamentals (i.e., earnings, book value, debt-equity). It is common for some investors to invest in value funds for income or yield. However, not all value funds consist solely of companies that primarily use their earnings to pay dividends. Investors interested in choosing value funds for yield should make sure to check the mutual fund yield. The mutual fund yield is dividend payments divided by the value of the mutual fund’s shares.

Below, we share with you three top- ranked small-cap value mutual funds, namely,Invesco Small Cap Value VSCAX, Principal SmallCap Value PJARX and Goldman Sachs Small Cap Value Insights GSATX. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of funds.

Invesco Small Cap Value fund invests most of its assets, along with borrowings, if any, in common stocks of small-capitalization companies, which, according to the fund’s advisors, are undervalued. VSCAX advisors also invest in derivatives, or other instruments with the same economic characteristics.

Invesco Small Cap Value fund has three-year annualized returns of 16.9%. As of the end of July 2024, VSCAX held 113 issues, with 3.6% of its net assets invested in Western Alliance Bancorporation.

Principal SmallCap Value fund invests most of its assets along with borrowings, if any, in equity securities of small-cap value companies at the time of purchase. PJARX advisors prefer to invest in securities that appear to be undervalued.

Principal SmallCap Value fund has a three-year annualized return of 4%. PJARX has an expense ratio of 1.49%.

Goldman Sachs Small Cap Value Insights fund invests most of its assets, along with borrowings, if any, ina broadly diversified portfolioof small-cap companies. GSATX advisors also invest in foreign issuers traded in the United States.

Goldman Sachs Small Cap Value Insights fund has a three-year annualized return of 4%. Joseph Kogan has been the fund manager of GSATX since February 2024.

To view the Zacks Rank and the past performance of all small-cap value mutual funds, investors can click here to see the complete list of small-cap value mutual funds.

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