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A small-cap value fund is a good choice for investors seeking diversification across sectors and companies, and focusing on gaining exposure to stocks trading at a discount.

Those with a high-risk appetite should invest in these funds. Small-cap funds generally invest in companies having a market cap of less than $2 billion. The companies, smaller in size, offer growth potential and can subsequently see an increase in market capitalization.

Value stocks are those that tend to trade at a price lower than their fundamentals (i.e., earnings, book value, debt equity). It is a common practice to invest in value funds for income or yield.

However, not all value funds comprise only those companies that primarily use their earnings to pay out dividends. Investors interested in picking value funds for yield should check the mutual fund yield, which is the total dividend payout divided by the value of the mutual fund’s shares.

Below we share with you three top-ranked small-cap value mutual funds, namely, Bridgeway Omni Tax-Managed Small-Cap Value Fund Class N ), PIMCO RAE US Small Fund Class A and Invesco Small Cap Value Fund Class A ). Each has a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of Small Cap Value mutual funds.

Bridgeway Omni Tax-Managed Small-Cap Value Fund Class N seeks long-term total return on investment, largely through capital appreciation. BOTSX invests in a wide range of small-cap stocks that are considered to be value equities.

Bridgeway Omni Tax-Managed Small-Cap Value Fund Class N has a three-year annualized return of 13.1%. As of December 2021, BOTSX held 657 issues with 1.12% of its assets invested in Antero Resources Corporation.

PIMCO RAE US Small Fund Class A seeks long-term capital growth. PMJAX invests the majority of its assets in securities of small-cap companies economically tied to the United States.

PIMCO RAE US Small Fund Class A has a three-year annualized return of 16.6%. PMJAX has an expense ratio of 0.94% compared with the category average of 1.16%.

Invesco Small Cap Value Fund Class A seeks long-term growth of capital by investing the majority of its net assets in the under-valued securities of small-cap companies. The principal type of equity security in which VSCAX invests is common stock.

Invesco Small Cap Value Fund Class A has a three-year annualized return of 19.6%. Jonathan Mueller has been one of the fund managers of VSCAX since 2010.