Small-cap value stocks still look cheap even after big rally, two fund managers say

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Justin Tugman of Janus Henderson Investors and Christian Stadlinger of Columbia Threadneedle Investment highlight a handful of stocks that they say are still...

Value stocks have been on a tear over the past six months, as some growth stocks have fizzled out. But the value rally may still be at an early stage, according to two fund managers from different companies who hold small-cap and mid-cap stocks.

Tugman co-manages the Janus Henderson Small Cap Value Fund JSCOX, -2.14% with Craig Kempler, and also co-manages the Janus Henderson Mid Cap Value Fund JMVAX, -0.92% with Kevin Preloger. The Small Cap Value Fund is rated four stars by Morningstar, while the Mid Cap Value Fund has a three-star rating.

Tugman said he and his colleagues tend to be “risk-averse.” When selecting new stocks for the portfolios they manage, they first consider downside risk, then focus on upside potential and come up with a risk/reward ratio. They steer clear of highly leveraged or unprofitable companies and those facing “binary events,” such as biotechnology developers holding trials.Stadlinger is the lead manager for the Columbia Small Cap Value Fund II NSVAX, -2.

The Columbia Small Cap Value Fund II holds about 100 stocks. Stadlinger said he and Ginsberg select value stocks they believe will turn into growth stocks as the companies’ earnings improve. “That’s how you get returns,” he said. So for all three indexes, the value groups have been in the lead for the past six months, as stocks have performed very well across the board.

 

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