Wasatch Small Cap Value Fund® (WMCVX)  Invest in this Fund 

Investor Class | Institutional Class
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In Bull and Bear Markets, Stock-Picking Is Critical
by Jim Larkins

“We believe our continued focus on high-quality companies … continues to provide the foundation for competitive performance through both up and down markets.”

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Investing in small or micro cap funds will be more volatile and loss of principal could be greater than investing in large cap or more diversified funds.
Investing in foreign securities, especially in emerging markets, entails special risks, such as currency fluctuations and political uncertainties, which are described in more detail in the prospectus.
Investments in value stocks can perform differently from other types of stocks and from the market as a whole and can continue to be undervalued by the market for long periods of time. Loss of principal is a risk of investing.

For the period ended March 31, 2019, the average annual total returns of the Wasatch Small Cap Value Fund for the one-, five- and ten-year periods were 3.46%, 8.21% and 17.35%, the returns for the Russell 2000 Value Index were 0.17%, 5.59%, and 14.12%, and the returns for the Russell 2000 Index were -11.01%, 4.41%, and 11.97%.  Expense ratio: Gross 1.20%.


Data shows past performance, which is not indicative of future performance. Current performance may be lower or higher than the data quoted. To obtain the most recent month-end performance data available, please click on the “Performance” tab of the individual fund under the “Our Funds” section. The Advisor may absorb certain Fund expenses, without which total return would have been lower. Investment returns and principal value will fluctuate and shares, when redeemed, may be worth more or less than their original cost.

Wasatch Funds will deduct a 2.00% redemption proceeds fee on Fund shares held 60 days or less. Performance data does not reflect the deduction of fees, including sales charges, or the taxes you would pay on fund distributions or the redemption of fund shares. Fees and taxes, if reflected, would reduce the performance quoted. Wasatch does not charge any sales fees. For more complete information including charges, risks and expenses, read the prospectus carefully.

Wasatch Funds are subject to risks, including loss of principal.


U.S equities rebounded from a poor finish to 2018 to register one of their best quarters of the post-financial crisis era. Investors were encouraged by favorable developments on several fronts, highlighted by stabilizing domestic growth data, signs that the United States and China were working toward a resolution of their trade dispute, and indications that the U.S. Federal Reserve was unlikely to raise interest rates again in 2019. Together, these factors helped the Russell 2000 Value Index—the Fund’s benchmark—surge to a gain of 11.93%.

The Wasatch Small Cap Value Fund—Investor Class delivered a return of 11.67%, which was in line with that of the benchmark. We view this as a positive result given that we outperformed when the market posted a double-digit loss in the fourth quarter of 2018—an indication that our stock-selection process may have helped to mitigate the downside and allowed the Fund to participate in the subsequent rally. We believe this favorable risk/return profile reflects our emphasis on higher-quality, fundamentally sound and financially strong companies.

Details of the Quarter

The vast majority of the Fund’s holdings delivered positive returns in the first quarter, with about half outpacing the broader market. Several of the top individual contributors illustrate key elements of our strategy and process, including the role of patience in value investing. In many cases, it takes some time for an investment thesis to play out and there are often bumps along the way. However, we’ll generally stay invested in an underperforming stock as long as the fundamental story remains intact. A prime example is truckload company Knight-Swift Transportation Holdings, Inc. (KNX). Knight-Swift’s shares lagged in 2018 as the company worked to integrate a large acquisition, but we saw the selloff as being greatly exaggerated given the company’s history of strong execution. The stock indeed rebounded in the first quarter after management announced strong results and boosted its 2019 earnings outlook.

Two other strong performers, Sun Hydraulics Corp. (SNHY) and Sleep Number Corp. (SNBR), provide excellent examples of our unique Fallen Angel discipline. “Fallen Angel” is the term we use to describe high-quality companies with outstanding business models whose shares have descended into value territory due to short-term factors. Sun Hydraulics, a maker of industrial products and controls, underperformed in 2018 following an acquisition. We liked the company and had watched it for more than 10 years without owning it. We viewed the fourth-quarter downturn as a chance to establish a position in what we saw as a high-quality company that had become undervalued. Similarly, we built up a meaningful weight in Sleep Number in 2017 after a stretch of weakness on the belief that the company’s efforts to transform its business had yet to be fully reflected in its earnings. The stock price has begun to reflect these fundamental changes, and Sleep Number gained over 40% to finish the first quarter as one of our top performers in terms of absolute returns.

The Fund typically has low exposure to the materials and energy sectors, where most companies are dependent on commodity prices to drive results. When we do invest in these areas, we tend to favor businesses that have control over their own fate instead of those that are reliant on market forces. One such company is Innospec, Inc. (IOSP), a materials company with a suite of specialty chemicals that can perform independently of the generic “commodity cycle.” We deliberately chose to invest in this business, based on good cash flow, multiple products, and a modest growth story, rather than allocating capital to more volatile materials companies whose fortunes are tied to commodity prices. Innospec shares rallied over 30% in the quarter, making it one of the top contributors to Fund performance.

Despite these many winners, we gave back some ground through weakness in a handful of individual stocks. Three of the Fund’s largest detractors were Stamps.com, Inc. (STMP), Atlas Financial Holdings, Inc. (AFH) and Cimpress N.V. (CMPR). Stamps.com lost more than half of its value in a single trading session after announcing an end to its exclusive agreement with the U.S. Postal Service. As portfolio managers, one of our most important functions is to determine whether to maintain a position when an investment underperforms, or if deterioration in fundamentals indicates that the stock has become a “value trap.” In the case of Stamps.com, we held on to the investment on the belief that the company may now be in a better position to take advantage of other growth opportunities. We also like its potential for international expansion and ability to capitalize on the growth of e-commerce. With that said, we’re closely monitoring fundamental developments to determine whether a change in course is warranted.

We took a different approach with Atlas Financial, a commercial auto insurer that announced it would need to increase its reserves to cover previous losses. We chose to sell the position at a loss, as we continue to see an unfavorable risk/reward profile in the stock.

U.S.-listed, Dutch-domiciled Cimpress, a “mass-market customization” printed-materials provider, weighed on Fund performance as the company reported surprisingly disappointing results across its business lines, owing in part to increasing competitive pressures. We reduced our position during the quarter in recognition of this risk, but our long experience with the company reminds us that Cimpress has overcome headwinds before. We’ll continue to monitor results. (Current and future holdings are subject to risk.)

Outlook and Positioning

Our portfolio activity was relatively light over the past three months, with the only notable changes involving our shifts within in the financials sector. We’ve been underweight in financials for quite some time, but recent volatility gave us the chance to compare our holdings with other opportunities. As part of this process, we sold our investments in First of Long Island Corp. (FLIC), Metropolitan Bank Holding Corp. (MCB) and Republic First Bancorp, Inc. (FRBK). All three banks have underperformed, and we believe they may continue to face headwinds. We also sold Sabra Health Care REIT, Inc. (SBRA), a real-estate investment trust that we believe is facing rising risks. We redeployed some of the proceeds from these sales into companies that we believe have better long-term prospects. One was Artisan Partners Asset Management, Inc. (APAM), a money manager with an experienced management team, an attractive dividend, and lower sensitivity to interest-rate movements than the sector as a whole. Since we had owned Artisan in the past and continued to follow the company, we were ready to move back in at an attractive valuation with the stock down. We also added Tennessee-based Pinnacle Financial Partners, Inc. (PNFP) and Texas Capital Bancshares, Inc. (TCBI), two well-run small banks operating in geographies with attractive economic drivers.

From a broader standpoint, we view the volatility of the past six months as a positive development since rapid market movements often create a wider range of opportunities to put our Fallen Angel strategy to work. We believe our continued focus on high-quality companies with recurring revenues, deeply entrenched customer bases, and limited competition continues to provide the foundation for competitive performance through both up and down markets.

Thank you for the opportunity to manage your assets.


Jim Larkins



**The Russell 2000 Value Index measures the performance of Russell 2000 Index companies with lower price-to-book ratios and lower forecasted growth values.

The Russell 2000 Index is an unmanaged total return index of the smallest 2,000 companies in the Russell 3000 Index, as ranked by total market capitalization. The Russell 3000 Index is an unmanaged total return index of the largest 3,000 U.S. companies based on total market capitalization. The Russell 2000 Index is widely used in the industry to measure the performance of small company stocks.

You cannot invest directly in these or any indexes.

The Wasatch Small Cap Value Fund has been developed solely by Wasatch Advisors, Inc. The Wasatch Small Cap Value Fund is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies.

All rights in the Russell 2000 Value Index vest in the relevant LSE Group company, which owns the Index. Russell ® is a trademark of the relevant LSE Group company and is used by any other LSE Group company under license.

The Index is calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Wasatch Small Cap Value Fund or the suitability of the Index for the purpose to which it is being put by Wasatch Advisors, Inc.

The Wasatch Small Cap Value Fund’s investment objective is long-term growth of capital. Income is a secondary objective, but only when consistent with long-term growth of capital.

A bear market is generally defined as a drop of 20% or more in stock prices over at least a two-month period.

A bull market is defined as a prolonged period in which investment prices rise faster than their historical average. Bull markets can happen as the result of an economic recovery, an economic boom, or investor psychology.

Earnings per share or EPS is the portion of a company’s profit allocated to each outstanding share of common stock. EPS growth rates help investors identify companies that are increasing or decreasing in profitability.

Valuation is the process of determining the current worth of an asset or company.

The Russell 2000 Value Index measures the performance of Russell 2000 Index companies with lower price-to-book ratios and lower forecasted growth values.   The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.   Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group. 

You cannot invest directly in indexes.

View the Small Cap Value Fund’s most current Top 10 Holdings

Portfolio holdings are subject to change at any time. References to specific securities should not be construed as recommendations by the Funds or their Advisor.

Read our Holdings Release Policy and why we have one.