Goldman Sachs Small Cap Value

Inflation favors value stocks, especially small-cap value stocks. In line with our expectation of rising inflation, we’ve created a small-cap value category in our fund portfolio, explains John Persinos, editor of The Complete Investor.

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Goldman Sachs Small Cap Value Insights A (GSATX) is a well-diversified fund, which holds nearly 350 stocks across all sectors, offers one-stop exposure to a broad assortment of small-cap value plays.

The fund avoids the pitfall of “top-heaviness.” Even its top position has a weighting below 1%, so the fund’s performance won’t be disproportionately affected by a handful of top holdings.

If small-cap value stocks again outperform their larger peers as they have historically done in high-inflation periods, GSATX is a good bet to capture this outperformance.

The funds’ holdings have an average market cap of $1.6 billion and average price-to-book ratio of 1.6, both squarely in line with our small-cap value criteria. For comparison, our benchmark, the Russell 2000, has an average market cap above $2 billion and a P/B ratio of 2.4.

Over time GSATX has been one of the best-performing funds for the category. Its one-, three-, and five-year returns put it in the top 19th, 12th, and 18th percentiles, respectively, among peer funds.

Annual turnover is somewhat high at 138% vs. the category average of 84%, but despite the high trading activity, the expense ratio of 1.25% is still below category average.

One reason is that GSATX charges a relatively low 0.25% rate for its 12b-1 fee, a fee that mutual funds commonly charge to cover distribution, marketing, and service costs. The typical rate ranges between 0.25% and 1%, so GSATX is on the low end of the range.

The fund charges a 5.5% load, but if you purchase it through major brokers such as Charles Schwab or TD Ameritrade, you should be able to get the load-waived. Check with your broker. The minimum initial purchase is $1,000.