Small-Cap Value Funds Outperform S&P 500 by 140% Over Five Years

Small-cap value funds have demonstrated a remarkable ability to outperform the S&P 500 over the past five years, despite facing stiff competition from AI-driven ETFs. This trend highlights the enduring relevance of value investing, which focuses on undervalued and underappreciated stocks that are often overlooked by mainstream investors.

One of the standout performers in this category is the Aegis Small Cap Value Active Fund. This fund has not only surpassed the S&P 500 but has also doubled its returns over the past five years. However, despite its impressive performance, the fund has struggled to attract investors, largely due to its packaging as a mutual fund. In contrast, the AVUV ETF, a small-cap value fund, has seen 46 times more inflows than the Aegis fund in the last year alone. This disparity underscores the growing preference for ETFs and AI-driven investment strategies.

The success of the Aegis fund can be attributed to its investment strategy, which focuses on small-cap stocks that are frequently ignored by other investors. These stocks often have long-term growth potential and are undervalued, making them attractive for value investors. By concentrating on these types of investments, Aegis has shown that value investing can outperform general market indexes, even in the face of more contemporary investment themes like AI-driven strategies.

Another notable performer is the AVALEX small-cap deep value fund, which has also outperformed the S&P 500. The fund's net asset value (NAV) has increased to 249.88, surpassing the S&P 500 and other competing indexes such as the SPTRSMP Index. However, small-cap funds like Aegis and AVALEX face challenges in attracting investors due to their mutual fund structure, which is less accessible and easier to trade compared to ETFs like AVUV.

Despite the rise of AI and ETFs, the recent performance of small-cap value funds suggests that traditional investment styles, such as value investing, may be making a comeback. Since 2020, small-cap value funds like AVALEX have advanced almost 249%, compared to the 109% increase in the S&P 500. This indicates that value investing can be a stable and profitable long-term strategy, even in a volatile market.

These funds focus on undervalued firms in niche markets, providing investors with the opportunity to exploit unexplored potential. As AI continues to influence the financial market, small-cap value funds are proving that a return to the fundamentals of investing, with an emphasis on value and growth potential, can yield even better results.