A small-cap value fund is a good choice for investors seeking diversification across sectors and companies, and focusing on gaining exposure to stocks that are trading at a discount. Those with a high-risk appetite should invest in these funds. Small-cap funds generally invest in companies having market cap of less 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, 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 the 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. Each has earned 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 all small-cap value mutual funds.

American Beacon Small Cp Value A (ABSAX - Free Report) seeks growth of capital and income for the long run. The fund invests a large chunk of its assets in equity securities of small-cap companies. ABSAX’s investments include dollar-denominated foreign stocks that are traded on the U.S. exchanges. It may also invest in ADRs and REITs. American Beacon Small Cp Value Ahas one-year annualized returns of 10.9%.

As of November 2017, ABSAX held 560 issues, with 3.18% of its assets invested in EMIN RUSSELL 2000 DEC17 XCME 20171215.

Bridgeway Small-Cap Value (BRSVX - Free Report) maintains a diversified portfolio by investing in securities of small-cap companies listed on the NYSE, NYSE MKT and NASDAQ. BRSVX seeks total returns through growth of capital. The fund invests the lion’s share of its assets in undervalued small cap stocks. Bridgeway Small-Cap Value has one-year annualized returns of 9.8%.

BRSVX has an expense ratio of 0.94% compared with the category average of 1.30%.

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 has returned 7.8% over the last one-year period.

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