U.S. economic data continue to show resilience despite volatility, driven mainly by geopolitical tensions and shifting investor sentiment. June housing starts rose sharply to an annualized 1.427 million from a revised 1.199 million in May, signaling renewed strength in residential construction. Manufacturing activity also held steady, with industrial production rising 0.1% for a second straight month and capacity utilization unchanged at 76.1%. Meanwhile, consumer confidence also improved, with the University of Michigan's preliminary July sentiment index climbing to 54.4 from 49.5 in June. Fresh economic data painted a mixed but generally encouraging picture.

Still, market participants stayed cautious despite healthy economic signals. Investors primarily focused on rising tensions in the Middle East, higher oil prices, and Treasury yields, while volatility in AI-related technology stocks fueled sharp swings in the market. Strong housing activity and improving consumer confidence suggest that the economy remains stable, but geopolitical risks continue to cloud the outlook and keep markets on edge.

Amid such market conditions, small-cap value funds like Invesco Small Cap Value (VSMIX Quick QuoteVSMIX - Free Report) , Goldman Sachs Small Cap Value Insights Fund (GSXPX Quick QuoteGSXPX - Free Report) and Bridgeway Omni Small Cap Value Fund (BOSVX Quick QuoteBOSVX - Free Report) are good choices for investors seeking diversification across different sectors and companies. These funds have the majority of their investments in sectors such as retail, technology, finance and industrial cyclical, which will help investors in long-term growth and wealth creation.

Why Invest in Small-Cap Value Mutual Funds?

Small-cap value mutual funds provide excellent choices for investors looking for bargains, i.e., stocks trading at a discount, with impressive growth potential. Small-cap funds are a good choice for investors with a high-risk appetite, as companies with small-market capitalizations are expected to have higher growth potential than large- and mid-cap companies. Small-cap funds generally invest in companies having a market cap of less than $2 billion. Also, small-cap funds are expected to provide diversification across different sectors and companies.

Value mutual funds are those that invest in stocks trading at discounts to book value, have a low price-to-earnings ratio and high dividend yields. Value investing is always a very popular strategy, and for a good reason. After all, who doesn’t want to find stocks that have low PEs, solid outlooks and decent dividends?

Mutual funds, in general, reduce transaction costs and diversify their portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

We have, thus, selected three small-cap value mutual funds that have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment within $5,000 and carry an expense ratio of less than 1%.

Invesco Small Cap Value fund invests most of its assets, along with borrowings, if any, in common stocks of small-capitalization companies and derivative instruments with similar economic characteristics. VSMIX advisors choose to invest in companies that, according to them, are undervalued.

Jonathan Mueller has been the lead manager of VSMIX since June 25, 2010. Most of the fund’s exposure was in companies like Coherent (3.9%), MKS (3.4%) and Western Alliance Bancorporation (2.6%) as of Jan. 31, 2026.

VSMIX’s three-year and five-year annualized returns are 31.5% and 21.4%, respectively. VSMIX has an annual expense ratio of 0.80%.

To see how this fund performed compared to its category, and other 1 and 2 (Buy) Ranked Mutual Funds, please click here.

Goldman Sachs Small Cap Value Insights Fundinvests most of its assets, along with borrowings, if any, in a broadly diversified portfolio of small-cap companies. GSXPX advisors also invest in foreign issuers traded in the United States.

Joseph Kogan has been the lead manager of GSXPX since Feb. 29, 2024. Most of the fund’s investments were in companies like TTM Technologies (1.3%), Hecla Mining (1.2%) and Ormat Technologies (1.1%) as of Jan. 31, 2025.

GSXPX has three-year and five-year annualized returns of 20.5% and 10.5%, respectively. GSXPX has an annual expense ratio of 0.83%.

Bridgeway Omni Small Cap Value Fund invests most of its assets, along with borrowings, if any, in a broad and diverse group of small-cap stocks that are listed on the New York Stock Exchange, the NYSE American and the Nasdaq at the time of purchase. BOSVX advisors generally invest in value stocks.

Andrew Berkin has been the lead manager of BOSVX since June 30, 2024. Most of the fund’s investments were in companies like Liberty Energy (1%), Sphere Entertainment (0.9%) and Viasat (0.9%) as of March 31, 2026.

BOSVX has three-year and five-year annualized returns of 19.6% and 11.3%, respectively. BOSVX has an annual expense ratio of 0.47%.

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