Small-cap funds with the best 10-year returns

Trader Talk

Similar to large-caps, funds tracking smaller companies found success over the past decade in growth stocks.

The 20 top-performing small-cap funds of the last 10 years recorded an average return of 16.11%, Morningstar Direct data show. This year, the same funds notched an average gain of more than 35%.

“There’s no surprise that all of the top-performing small cap funds are growth funds, since growth has outperformed value by significant amounts for a long time,” says Albert Brenner, director of asset allocation strategy at People’s United Advisors.

For comparison, index trackers such as the SPDR S&P 500 ETF Trust (SPY) and the SPDR Dow Jones Industrial Average ETF Trust (DIA) generated 10-year returns of 13.93% and 12.93%, respectively. This year, SPY and DIA had gains of 12.8% and 5.3%.

In bonds, the iShares Core U.S. Aggregate Bond ETF (AGG) had gains of 6.61% and 3.61% over the YTD and 10-year periods.

All of the funds in the top 20 outperformed the industry’s biggest small-cap fund. With a net expense ratio of 6 basis points and $49.8 billion in AUM, the iShares Core S&P Small-Cap ETF (IJR) had a YTD loss of 1.35% and 10-year gain of 11.79%, data show.

For their outperformance, these funds carried fees well above their industry peers. With an average net expense ratio of 114 basis points, the best-performing small-cap funds were more than twice that of the 0.45% investors paid for fund investing last year, according to Morningstar’s most recent annual fee survey.

“Generally speaking, the small-cap world is a place that can reward good, disciplined research,” Brenner says, adding that small-cap stocks often involve just a handful of analysts. “The lack of analyst coverage makes the space much less efficient. Good research and expert judgment is more readily rewarded in this space.”

Scroll through to see the 20 small-cap funds with the best 10-year returns through Nov. 16. Funds with less than $100 million in AUM were excluded, as were funds with investment minimums above $100,000, leveraged and institutional funds. Assets and expense ratios, as well as YTD, one-, three- and five- returns are also listed for each. The data show each fund’s primary share class. All data is from Morningstar Direct.

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