The 20 worst-performing small-cap funds of the last 10 years, nearly all of which are value strategy funds, had an average return of roughly 6.7%, Morningstar Direct data show. So far this year, the same funds have a loss of more than 5%.
Pitted against the broader industry, this lineup of mutual funds and ETFs have underperformed. For comparison, index trackers such as the SPDR S&P 500 ETF Trust (SPY) and the SPDR Dow Jones Industrial Average ETF Trust (DIA) delivered 10-year gains of 13.76% and 12.75%, respectively, over the same period. Year-to-date, SPY and DIA have gains of 12.29% and 5.21%.
In bonds, the iShares Core U.S. Aggregate Bond ETF (AGG) had gains of 6.86% and 3.62% over the YTD and 10-year periods.
“There are numerous arguments about why value has underperformed growth for so long, but at least one reason has to do with sector concentrations,” says Matt Kerr, senior wealth advisor at Keel Point. “Value indexes tend to have a large allocation to financials and energy, whereas growth indexes tend to be overweight the technology sector.”
Much like the small-cap category’s top-performers, funds here carry fees well above the broader industry. With an average net expense ratio of 111 basis points, the worst-performing small-cap funds were more than twice that of the 0.45% investors paid last year, according to Morningstar’s most recent annual fee survey.
“The relative performance of individual asset classes and investment styles will move in and out of favor over time,” Kerr says. “While it can make sense to tilt your portfolio in a certain direction, predicting the precise turning points in these cycles is profoundly difficult. That’s why it is often better to focus on building a well-diversified portfolio with exposures to a variety of sources of long-term returns.”
Scroll through to see the 20 small-cap mutual funds and ETFs with the worst 10-year returns through Nov. 19. 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.