Small-Cap Value Funds Outperform S&P 500 Despite ETF Competition

As of 20 June, a distinct pattern has developed in the world of mutual funds in the last few years, and it is that of small-cap value strategies. Further, the funds managed by AI are becoming more and more popular each year. However, the old small-cap funds, including Aegis and AVALEX, still managed to have a better five-year record when it comes to beating the S&P 500. Moreover, it is an argument that value investing has greater relevance than ever before. The funds have all been playing the undervalued and underappreciated stock game. However, they have been mostly ignored by investors in favour of other high-growth sectors such as AI-targeted ETFs.

Small-Cap Funds Defy Expectations, Deliver Strong Returns

As Eric Balchunas has pointed out, Aegis Small Cap Value Active Fund has been massacring its benchmark. Further, it has surpassed the S&P 500 and has returns which have doubled those of the S&P 500 during the last five years. Even after this impressive success, the fund is having problems attracting investors. This is because it is still packaged as a mutual fund. 

In the last year alone, the AVUV ETF, a small-cap value fund, has experienced 46 times more inflows than the Aegis fund. These contrasts highlight how a preference for ETFs and futures-based funds driven by AI is rising.

The reason why the Aegis fund is a successful one has to do with its investment strategy. It is the small-cap stocks which are frequently ignored by other mainstream investors. Such stocks are usually those which can grow long-term, and are therefore underestimated. With these types of investments, Aegis has demonstrated the ability to outperform value investing as compared to a general market index. This is despite all the more contemporary investment themes like AI-driven investment styles.

The Market Shift Toward AI and ETFs

Although Aegis and AVALEX have produced stellar returns, the industry still favours the exchange-traded fund (ETF) structure. The huge inflows into funds like AVUV have been stirred by AI, drawing a lot of attention. Moreover, according to David Cohne, it is clear that the AVALEX small-cap deep value fund has performed better as compared to the S&P 500. Furthermore, the NAV of AVALEX has increased to 249.88, ahead of the S&P 500. The other competing indexes, such as the SPTRSMP Index.

Nevertheless, these small-cap funds have an uphill task when it comes to wooing investors. At the moment, small-cap active funds such as Aegis remain restricted to the wrappers of mutual funds. It is one of the key factors that severely restrain their popularization in the market in comparison to ETFs. AVUV ETF is experiencing growth because it is easily accessible, and its trade is easy to accomplish. 

A Long-Term Strategy in the Age of AI

The experimental results in the recent work indicate that the conventional investment styles, such as value investing, could be back. The small-cap value funds like AVALEX have advanced almost 249% compared to the 109% of the S&P 500 since 2020. Although funds and growth-based strategies based on AI continue to remain the highlight of the town, they are not the only ways of success in investing. Since the market is volatile and evolves, small-cap value investing has been found to be a long-term approach with a stable profit.

These funds are concerned with under-valued firms in the niche markets, which gives investors an opportunity to exploit unexplored potential. With the rise of AI in the financial market, small-cap value funds are showing that by getting back to the fundamentals of investing. Meanwhile, paying attention to the value and growth potential, one can achieve even better results.