One of the smallest value performers to outperform the broader market and peers this year is a small Cincinnati-based fund with a somewhat interesting investment strategy, according to data from Morningstar. Auer Growth Fund is a small value fund with $34.6 million in assets under management. So far this year, it’s up 13.39%, compared to the S&P 500’s roughly 10% decline. This is the top 1% of performance compared to other small value funds. Long-term performance has been tougher. According to Morningstar, the fund has outstripped the category index—the Russell 2000 Value Index—by 4.8 percentage points over the past five years and surpassed the average return in the category by three percentage points. However, over a 10-year period, the funds index underperformed by 1.2 percentage points. By the end of June 2007, the fund had returned 1.27% compared to the S&P 500’s return of about 9%, according to information received from SB Auer Funds LLC, Fund advisor since its inception in December. In fact, its ranking this year is a bit of a redemption for Auer Growth and its strategy – in 2018 the fund was in the 100th percentile (last place) in Morningstar’s small mix category. It rose to 16 percent in 2019 and fell to 93 percent in 2020. But about five years ago, Auer Growth modernized its stock picking strategy and how it weighs these names in the portfolio, which has helped its performance. According to Eric McKenzie, the fund’s portfolio manager. Stock purchases and holdings The fund’s current investment strategy is relatively simple. “We’re looking for high-performing stocks at a deep discount,” McKenzie said. He said the management team had three main criteria for selecting investments. Companies must have at least 20 percent year-over-year revenue growth and at least 25 percent year-over-year earnings growth. Also, the stock must be trading at a price-earnings ratio below 12 to be included in the portfolio. Beyond these parameters, the fund does not limit or target specific industries or company sizes. Instead, it’s looking for solid performance. “We’re a real fund that goes really anywhere,” McKenzie said. Energy, health, technology, industry and consumer names are among the fund’s heaviest stocks. The fund rebalances quarterly and adheres to its criteria to determine what remains in the portfolio. If a stock in the portfolio no longer meets the investment criteria, it is downgraded and replaced with the appropriate one. In the quarter ended June 30, the fund received three new names. It also bought more shares in existing investments such as home builders MDC Holdings and PulteGroup. Going forward, advisors feel the fund is in a good position to perform and are confident they can find companies with growing sales even if the US goes into recession. “We were really happy with what the portfolio did and we were really humble about the whole process,” McKenzie said. According to Morningstar’s analysis, the actively managed fund has a total gross expense ratio of 2.37%, often higher than its peers.