Time for Small Companies to Shine
The environment is right for investing in small companies. These five managers divide and conquer the small-cap market.

Now is proving to be a “super-exciting time to be investing in small companies,” says Shadman Riaz, a comanager of Fidelity Stock Selector Small Cap (symbol FDSCX). A growing economy and higher interest rates make a good environment for small-capitalization stocks. What’s more, a rush of initial public offerings means there are more under-the-radar companies on the market—and thanks in part to the popularity of indexing, fewer analysts who research them, says Riaz. All told, “there’s an opportunity for active managers to outperform,” he says.
Stock Selector Small Cap has a unique setup. Five managers run the fund, but the portfolio is divided into three different sleeves, managed separately. Two parts hold a diversified mix of stocks across many sectors. One of those favors growing, high-quality firms; the other tilts toward so-called cyclical, or economy-sensitive, value-oriented opportunities. The third sleeve focuses only on health care stocks.
The managers collaborate, but they don’t work by consensus. “We make individual decisions,” says Riaz. However, they all look for businesses with a competitive edge, run by smart executives, that trade at a discount to the managers’ estimate of fair value.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
No matter where they fit in the overall portfolio, stocks in the fund typically meet one of three sets of criteria. Some companies are steady businesses with strong competitive niches, pristine balance sheets and reasonable valuations. Business services provider ExlService Holdings is “growing at a good clip and has good cash flow,” says Riaz. Others are innovative companies with in-demand products. SiTime, for example, makes timing devices embedded in gadgets such as earbuds and smartphones to help them sync quickly. The third group includes out-of-favor cyclicals. Oil refinery HollyFrontier, for instance, has been trading at a low price relative to book value (assets minus liabilities), says Riaz.
The portfolio structure has delivered good results. Over the past three years, the fund’s 18.6% annualized return outpaced 97% of its small-blend peers (funds that invest in small companies with either a growth or value tilt).
Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.
-
-
Stock Market Today: Stocks Give Back Big Debt Ceiling Deal Gains
The major benchmarks opened solidly higher Tuesday after lawmakers announced a debt ceiling deal, but optimism faded into the close.
By Karee Venema • Published
-
Can Stocks Picked by Artificial Intelligence Beat the Market? 3 Stocks to Watch
stocks An artificial intelligence stock-picking platform identifying high-potential equities has been sharp in the past. Here are three of its top stocks to watch over the next few months.
By Dan Burrows • Published
-
How True Are These Investing Cliches?
We examine how much faith you can put into these investing cliches.
By Kim Clark • Published
-
The 5 Best Actively Managed Fidelity Funds to Buy Now
mutual funds In a stock picker's market, it's sometimes best to leave the driving to the pros. These Fidelity funds provide investors solid active management at low costs.
By Kent Thune • Last updated
-
The 12 Best Bear Market ETFs to Buy Now
ETFs Investors who are fearful about the more uncertainty in the new year can find plenty of protection among these bear market ETFs.
By Kyle Woodley • Published
-
Don't Give Up on the Eurozone
mutual funds As Europe’s economy (and stock markets) wobble, Janus Henderson European Focus Fund (HFETX) keeps its footing with a focus on large Europe-based multinationals.
By Rivan V. Stinson • Published
-
10 Bond Funds to Buy Now
Investing for Income Bond funds have seen sizable losses so far this year, but yields are now rising to attractive levels for income-starved investors.
By Adam Shell • Published
-
Vanguard Global ESG Select Stock Profits from ESG Leaders
mutual funds Vanguard Global ESG Select Stock (VEIGX) favors firms with high standards for their businesses.
By Rivan V. Stinson • Published
-
Kip ETF 20: What's In, What's Out and Why
Kip ETF 20 The broad market has taken a major hit so far in 2022, sparking some tactical changes to Kiplinger's lineup of the best low-cost ETFs.
By Nellie S. Huang • Published
-
ETFs Are Now Mainstream. Here's Why They're So Appealing.
Investing for Income ETFs offer investors broad diversification to their portfolios and at low costs to boot.
By Nellie S. Huang • Published