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Morningstar FundInvestor
January
2016
rough patches, including the third quarters of
2014
and
2015
, when strong stock-picking, rather than
a large cash stake, drove results. The fund’s strong
long-term risk-adjusted record within the small-
value category dates back to its
1987
founding under
Bob Perkins, who has stepped back but remains
involved. The
2013
departure of comanager Todd Perk-
ins was unexpected, but comanager Justin
Tugman remained onboard and was joined by finan-
cials analyst Tom Reynolds.
T. Rowe Price Diversified Small Cap Growth
PRDSX
This fund has racked up an excellent record since
Sudhir Nanda took the helm in October
2006
, beating
most of its small-growth peers on both a total-
return and risk-adjusted basis. The fund has been a
consistent performer, too, landing in the category’s
top half in each calendar year during Nanda’s tenure.
Nanda relies heavily on quantitative stock-picking
models but has kept a lid on volatility by relying less
on momentum than many quants do, instead focus-
ing on valuation and earnings quality. The portfolio
holds about
300
stocks, with positions capped at
1%
of assets. The fund’s quant models don’t take com-
panies’ debt into account, so the portfolio’s debt/
capital ratio is sometimes above the category norm,
and the fund could be hurt if interest rates rise.
However, Nanda’s disciplined strategy and record of
strong stock selection, coupled with the fund’s well
below-average fees, bode well.
T. Rowe Price Small-Cap Value
PRSVX
This fund has generated good long-term risk-adjusted
performance with a portfolio diversified across
more than
300
names—which not only minimizes
stock-specific risk but has also kept a large asset
base manageable. David Wagner, who had served as
associate portfolio manager since
2005
, took over
for longtime manager Preston Athey in July
2014
after
working alongside him for nine months to ensure a
smooth transition. He follows the same risk-conscious
strategy, buying stocks trading at low absolute or
relative valuations and hanging on as their gains com-
pound. This buy-and-hold approach pushes up
the fund’s valuation metrics, nudging it into the small-
blend category. However, management avoids
holding too many stocks that graduate to mid-caps.
Wasatch Core Growth
WGROX
Wasatch is known for building compact portfolios of
stocks with defensible economic advantages and
consistent economic returns across market cycles, and
this fund has delivered competitive results within the
small-growth category with generally low Morningstar
Risk ratings. Stock-picking drives portfolio construc-
tion, so assets can cluster in sectors where managers
J.B. Taylor and Paul Lambert find opportunities:
The fund has large helpings of industrial and financial
stocks relative to its small-growth peers and a sig-
nificant underweighting in health care. Its average
valuation measures are generally in line with the
category average, but its quality metrics—such as re-
turn on assets--are usually stronger than peers’,
and risk-adjusted performance is its selling point. The
fund hasn’t always outperformed in down markets—
it was out of step in
2008
—but it was well in the black
in
2011
’s tough market.
K
Contact Laura Lallos at
laura.lallos@morningstar.comSmall-Cap Downside Capture
Name
Ticker
Morningstar
Category
Morningstar
Analyst Rating
Total Assets
($ Mil)
3-Yr Downside
Capture Ratio*
5-Yr Downside
Capture Ratio*
10-Yr Downside
Capture Ratio*
Conestoga Small Cap
CCASX
Small Growth
•
637
85.51
93.96
96.52
Mairs & Power Small Cap
MSCFX
Small Blend
•
191
93.34
Neuberger Berman Genesis
NBGNX
Small Growth
´
10,245
97.04
92.56
89.48
Perkins Small Cap Value
JSCVX
Small Value
•
1,434
93.50
105.38
90.58
T. Rowe Price Div Sm Cap Growth PRDSX
Small Growth
•
2,068
81.12
110.97
111.63
T. Rowe Price Small-Cap Value
PRSVX
Small Blend
´
7,773
104.36
109.83
107.55
Wasatch Core Growth
WGROX
Small Growth
•
1,222
87.76
84.46
110.00
Vanguard Small-Cap Index
VSMAX
Small Blend
Œ
56,001
106.95
124.31
123.56
*Ratios calculated vs. S&P 500. Data as of November 2015.