(PUB) Morningstar FundInvestor

2

The State of Small-Cap Funds Continued From Cover

Vanguard Explorer VEXPX ($ 388 million), and Royce Value Plus RYVPX ($ 288 million.) I’m not worried about Vanguard Explorer because those redemptions are dispersed across many subadvisors and a $ 10 billion asset base. But it could be a real problem for the others. Resource Stocks Pack a Punch Has your mild-mannered small-cap fund turned into a Tasmanian devil? Materials stocks such as miners may be to blame. With declining demand from China, these stocks have pummeled the value managers who bet on a rebound. Even a modest amount can smack a fund. The aforementioned Royce Low Priced Stock has the biggest materials stake with 17% of assets in the sector. Not coincidentally, it is also the only small-cap fund in the Morningstar 500 that’s in the red for 2013 , and it has the most outflows. Schneider Small Cap Value SCMVX , Allianz NFJ Small-Cap Val- ue PNVDX , Royce Special Equity RYSEX , Royce Micro-Cap RYOTX , Third Avenue Small Cap Value TASCX , and Royce Opportunity RYPNX all have more than 10% of assets in the sector. Royce Special Equity has remained tame, but Royce Opportunity and Schneider Small Cap Value have had high volatility with a standard deviation over 20% . Managers Believe in Their Funds Whatever the future holds, you can be assured your small-cap managers will have their money alongside yours. All of the actively managed small-cap funds in the Morningstar 500 can boast that their managers invest in them. In fact, 30 of the 61 have a man- ager with at least $ 1 million of his or her own money in them. Not Much Love for Cash Some have argued we should all be building a cash stake so we’ll be ready for the next buying opportu- nity, but small-cap managers remain fully invested for the most part. Only two have raised cash beyond where they historically have it.

Royce Micro-Cap RYOTX and Wasatch Core Growth WGROX have 12% and 10% , respectively, in cash. That may serve them well if stocks swoon. Other funds have the pedal to the metal: Royce Low Priced Stock, Turner Small Cap Growth TSCEX , Wasatch Ultra Growth WAMCX , and Litman Greg- ory Masters Smaller Companies MSSFX have cash stakes that are less than 1% . Upgrades and Downgrades We raised our rating on Artisan Small Cap Investor ARTSX to Silver from Bronze as we grew more comfortable with how Craigh Cepukenas was working with Andy Stephens’ team. The team came on to work with Cepukenas in 2009 . Stephens’ group has

Top-Rated Open Small-Cap Funds

Name

Ticker

Morningstar Analyst Rating

Small Blend Ariel Discovery Investor

ARDFX ARSMX ARSVX BERWX BOGLX BRSIX DFSCX DFSTX FSLCX FMIOX RYOTX RYTRX STSCX PRSVX VSMAX VTMSX ARTSX BSCFX BCSIX CSMVX CCASX KGSCX LKSCX RYLPX PENNX PRDSX PRNHX OTCFX VSGAX WGROX DHSCX RYPNX TASCX VSIAX

´ ´ ´ • • ´ ´ ´ ´ ´ ´ ´ Œ • • ´ • • • ´ ´ • • • Œ Œ Œ Œ • ´

ASTON/River Road Select Value N ASTON/River Road Small Cap Value N

Berwyn

Bogle Small Cap Growth Inv

Bridgeway Ultra-Small Company Market

DFA US Micro Cap I DFA US Small Cap I

Fidelity Small Cap Stock

FMI Focus

Royce Micro-Cap Invmt Royce Total Return Invmt Stratton Small-Cap Value

T. Rowe Price Small-Cap Value Vanguard Small Cap Index Adm

Vanguard Tax-Managed Small Cap Adm

Small Growth Artisan Small Cap Investor Baron Small Cap Retail

Brown Capital Mgmt Small Co Inv Century Small Cap Select Inv

Conestoga Small Cap

Kalmar Growth-with-Value Sm Cp Inv LKCM Small Cap Equity Instl Royce Low Priced Stock Svc Royce Pennsylvania Mutual Invmt T. Rowe Price Diversified Sm Cap Growth

T. Rowe Price New Horizons T. Rowe Price Small-Cap Stock

Vanguard Small Cap Growth Index Admiral

Wasatch Core Growth

Small Value Diamond Hill Small Cap A Royce Opportunity Invmt

Œ

´ ´ •

Third Avenue Small Cap Value Instl Vanguard Small Cap Value Index Admiral