In his The No-Load Fund Investor, the fund expert suggests, "Overall, we consider this fund to be an excellent core holding for small-cap exposure." Here's his bullish overview.
"The fund lost just 28.6% in 2008, vs. anearly 37% loss for the average small-cap-value fund. In 2009, though, that has reversed a bit: Price Small Cap Value has gained 19.6% to its average peer's 22.7% gain. Two reasons for the sluggish performance this year are rooted in the fund's basic composition.
"One, large caps have generally done better than small caps, and growth has done better than value. Price Small Cap Value is, through no fault of its own, on the wrong end of both of those spectra.
"Two, manager Preston Athey typically populates his portfolio with stocks of higher quality companies. Since more speculative fare led the market's rebound off its March lows, Athey's picks did not participate as strongly in the rally.
"In 2004, when the most speculative portion of the rally had concluded, the fund outpaced its benchmark and average peer by wide margins. Something similar is likely to happen in 2010.
"Sector allocations also have held the fund in check. Industrial stocks make up the single largest of these (22%), and industrials as a group have lagged well behind the broader market in 2009.
"Athey also has underweighted financials (currently 21% of the portfolio) relative to the index (34%) and to peers (24%). This helped in late 2008 and early 2009 when financials were tanking, but since March financials have enjoyed a robust (if sometimes seemingly precarious) rebound.
"Athey finds few sectors clearly overvalued, but says he has found many compelling values in commodities. 'I've been buying the entire natural-resources complex,' he says, favoring metals producers (especially gold) and building a slightly overweight position in energy (about 7%).
'He thinks that both real demand from voracious raw-material consumers China and India, along with the inflationary monetary policies of most central banks, are spurring a secular increase in commodity prices.
"In the energy sector, he is bullish on natural gas and equipment & services companies. We still consider this fund to be an excellent core holding for small-cap exposure."
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