During the past month, world equity prices as measured by the MSCI World Index are up 10.1%. Markets in the developed nations have performed essentially comparably to those in emerging markets. From a regional perspective, equity prices in Eastern Europe have led the way while those in North America have lagged.
In the U. S., small cap stocks as measured by the Russell 2000 benchmark have led large caps as measured by the S&P 500. As fears of a depression have ebbed amid signs of a stabilizing U. S. economy, shares in the financial sector led the way supported by healthy dose of short covering. Shares in the materials and industrials sector too recorded strong gains on the premise that rapid growth in China and India will boost demand and enable economies around the globe to recover from the credit crisis.
From an investment style perspective, value materially outperformed growth. As a category, domestic small cap value funds have performed better than the other eight categories. The Russell 2000 Value Index, a proxy for the small cap value category is up 11.5%. The large cap growth proxy Russell 1000 Growth Index lagged gaining just 4.5%.
Oftentimes categories that are strong performers in one month can extend their leadership for a longer duration after taking a breather. As such, it makes sense to keep a watch on small cap value investments. Here are some ETFs and mutual funds that are sensible to track.
Vanguard Small Cap Value ETF – VBR
Vanguard Small Cap Value ETF seeks to track the performance of the MSCI US Small Cap Value Index, a broadly diversified index of value stocks of smaller U. S. companies.
VBR has gained 12.2 % during the past month. Over the past 5 years, the ETF has gained at a 2.8% annual rate.
With over $4.4 billion in assets, the Vanguard Small Cap Value holds over 1,000 companies. Averaging over 200,000 shares per day in trading volume, the liquidity of VBR shares is adequate. Vanguard Small Cap Value has a measly 0.15% expense ratio.
SPDR Dow Jones Small Cap Value ETF – DSV
SPDR Small Cap Value ETF seeks to track the performance of the Dow Jones U. S. Small Cap Value Total Stock Market Index.
DSV has performed better that VBR during the past month gaining 14.3%. This ETF also has the edge in long-term performance gaining at an annual rate of 3.8% over the past 5 years.
SPDR Dow Jones Small Cap Value has nearly $84 million in assets and spreads them over 800 companies. Shares of DSV do not change hands frequently. Average daily trading volume is around 14,000. This can cause DSV’s bid-ask spread to be relatively wide. SPDR Dow Jones Small Cap Value has an expense ratio of 0.25%.
Small Cap Value Mutual Funds
American Century Small Cap Value Fund – ASVIX
After remaining closed to new investors for more than seven years, the American Century Small Cap Value Fund reopened on April 20, 2009. American Century Small Cap Value has a relatively strong long-term track record averaging an annualized gain of 5.5% over the past 5 years. According to Morningstar, this places the fund in the top 15% of funds in the small cap value category.
The fund’s managers Benjamin Giele and James Pitman seek long-term capital growth by investing in stocks trading with low price/earnings ratio, low price/book ratio, low price/cash flow ratio, or high dividend yields and selling them when valuation metrics approach the small cap market averages.
American Century Small Cap Value fund has gained 10.4% during the past month lagging the Russell 2000 Value Index a tad. This no load fund manages nearly $1.4 billion with an expense ratio of 1.25%.
Royce Opportunity Investment Fund – RYPNX
Royce Opportunity Investment Fund seeks long-term capital growth by investing in smaller companies with an approach that emphasizes turnarounds and special situations.
Managed by Boniface Zaino and William Hench, the $1.3 billion Royce Opportunity has gained 14.5% during the past month. The fund has done reasonably well over longer periods as well. According to Morningstar, Royce Opportunity has returned 3.5 % over the past 5 years; this places the fund in the top 31% of small cap value funds. This no load mutual fund carries an expense ratio of about 1.17%.