A Contrarian Approach Pays Off for This Small-Cap Fund
Small-cap stocks have been hit hard by tariff worries, but this T. Rowe Price fund has outperformed thanks to its manager's against-the-tide approach.
Tariff worries have hurt stocks in companies of all sizes. But small-company stocks bore the brunt of the pain. The Russell 2000 Index fell as much as 28% from peak to trough during the worst of the market selloff earlier this year.
A small recovery has helped lift returns – some. All told, over the past 12 months, the benchmark logged a slim, 1.2% gain. The T. Rowe Price Small-Cap Value Fund (PRSVX) – a member of the Kiplinger 25, our favorite no-load mutual funds – fared better with a 3.0% gain.
Fund manager David Wagner spent the market's worst days being a contrarian. He trimmed stakes in utility stocks and real estate investment trusts (REITs), which were performing well, and invested in "the most economically sensitive and tariff-exposed names," says Wagner, including retail and restaurant businesses, as well as materials and chemicals companies with exposure to global trade.
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"People were overreacting to potential changes in tariffs. I'm not saying we don't view it as a problem, but none of this stuff is settled," he says.
Betting on better results
Wagner bought a stake in shoe company Steven Madden (SHOO) after the shares lost nearly half their value. It is the number-one importer of women's shoes in the country, he says, with a big chunk coming from China. Since hitting a low in mid-April, the stock has recovered 27%.
Wagner likes to focus on unloved fare, but lately he says he's drawn to companies with a "differentiated" approach.
Carvana (CVNA), for instance, "has upended the way people buy used cars," he says. He bought the stock as the firm teetered toward bankruptcy for $30 a share in late 2023; it recently traded for $327.
"It's a large cap now,” he says. "But we let it run. We invest with a long time horizon, and we don't sell arbitrarily when stocks surpass" small-cap measures.
Wagner has run Small-Cap Value since mid-2014. Over the past decade, his 7.7% annualized return beat 72% of his peers.
This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
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