Investors seeking diversification across sectors and companies, and focusing on gaining exposure to stocks at a discount may consider investing in small-cap value funds. These funds are good investment choices for investors with a high risk appetite. Small-cap funds generally invest in companies having market cap lower than $2 billion. The companies, smaller in size, offer growth potential and can subsequently see an increase in market capitalization.

Meanwhile, value stocks are those that tend to trade at a price lower than their fundamentals (i.e. earnings, book value and debt-equity). It is a common practice to invest in value funds for income or yield. However, not all value funds solely comprise companies that primarily use their earnings to pay dividends. Investors interested in choosing value funds for yield, should surely check the mutual fund yield, which is dividend paid out divided by the value of the mutual fund’s shares.

Below we share with you four top-ranked, small-cap value mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future.

MassMutual Select Small Company Value R5 (MSVSX - Free Report) seeks appreciation of capital for the long run by investing in equity securities that are expected to be undervalued. MSVSX invests a bulk of its assets in the securities issued by companies which fall within the range of the Russell 2000 Index or the S&P SmallCap 600 Index. MassMutual Select Small Company Value R5 returned 24.6% over the last one-year period.

MSVSX has an expense ratio of 1.02% compared with the category average of 1.30%.

Victory Integrity Small-Cap Value R6 (MVSSX - Free Report) invests heavily in securities of small-cap companies included on the Russell 2000 Index. MVSSX seeks growth of capital for the long run. Victory Integrity Small-Cap Value R6 returned 23.9% over the last one-year period.

As of March 2017, MVSSXheld 140 issues, with 2.07% of its assets invested in
iShares Russell 2000 Value.

Prudential QMA Small-Cap Value Retirement (TSVRX - Free Report) seeks above-average growth of capital. TSVRX invests the lion’s share of its assets in equity securities of small-cap companies. The fund invests primarily in companies whose market-cap fall within the range of the S&P SmallCap 600 Index or the Russell 2000 Index. TSVRX not only invests in U.S. equity securities and REITs but also in common stocks of non-U.S. companies. Prudential QMA Small-Cap Value Retirement returned 24.7% over the last one-year period.

Mitchell Stern is one of the fund managers of TSVRX since 2015.

Federated Clover Small Value A (VSFAX - Free Report) invests in equity securities of domesticsmall-cap companies within the range of the Russell 2000 Index. VSFAX seeks growth of capital. Federated Clover Small Value A returned 23.6% over the last one-year period.

VSFAXhas an expense ratio of 1.26% compared with the category average of 1.30%.