Big Value in Small-Caps

For the last 10 years, small-cap stocks have been the leading sector.

Looking at 10-year returns of major fund categories, it’s clear that the leading category, small-cap value, got a big leg up during the bull market that began in 2003.
Among top performers in this group tracked by Standard & Poor’s Micropal the past 10 years has been RS Partners. It’s risen an average annual 17.44% in the 10 years ended Oct. 31 and an average annual 37.9% from March 31, 2003.
“All companies have benefited from expanding margins in the past few years,” noted David Kelley, a co-manager of RS Partners. “But small caps have seen more margin expansion. The main reason is they have smaller operations and more operational leverage than larger companies.”
Other leading small value funds were Keeley Small Cap Value, up an average annual 36.4% since the bull market began, and FPA Capital, up 28.3% a year.
It should come as no surprise that energy has played a big role in these funds’ performance. RS Partners had 16% of its assets in the sector as of Sept. 30, according to data collected by Morningstar. That was more than 1.5 times the S&P 500’s weighting in the sector and nearly twice that of the average small-cap value fund. Keeley Small Cap Value had 21% in energy and FPA Capital 32%.
Top-performing stocks among these funds’ biggest holdings as of their latest reporting periods included Toronto-listed Compton Petroleum in RS Partners. FPA Capital counted Ensco International among its top holdings. Keeley’s fund had McDermott International and Range Resources.

Posted by on November 29th, 2005 at 5:56 pm

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