Favorite Funds Update - Small-Cap Value Category

April 5, 2011

Royce PA Mutual Fund (PENNX) is out, Homestead Funds Small Company (HSCSX) is in as our favorite open-end and top overall favorite in the small-cap value category.

We’ve been using and recommending Royce funds for most of the 2000s – the decade of small-cap. We’ve had great returns with our current small-cap value favorite PENNX and several other Royce funds that have appeared both in our model portfolios and as favorites. However, we’re making a broad call on Royce as a family similar to the one we made in 2000 on Janus: it’s time to move on.

Royce has too much money under management and is focusing too heavily on stocks we think are in for a lousy few years. In 2000 this over-allocation was Janus’ love of larger cap high P/E growth and tech stocks. In 2011 that is Royce and smaller-cap gold mining stocks. This fund and many Royce funds have too large a stake in gold mines. I’m sure the stock experts at Royce would beg to differ, but then so could Janus managers about our take on large cap growth stocks in 2000. 

To view the complete list of our favorite small-cap value funds, click here.