Fund Spotlight: a lesser-known US equity fund delivering the goods

Despite ongoing inflation concerns and uncertainty around the path of interest rates, US equities have remained resilient this year. 

While much of the market attention has remained on large-cap technology stocks this earnings season, returns have broadened across the market, with US small-cap indices also performing strongly. 

• Invest with ii: Trade Investment Trusts | Cashback Offers | Open a Trading Account

The S&P 500 is up 4.8% in sterling terms year to date, while the Russell 2000 Growth index and Russell 2000 Value index have returned 11% and 13.4% respectively. 

Despite this improving backdrop, investors often associate the US small-cap sector more closely with growth-oriented strategies than value investing.

One relatively new launch within the value space is the First Eagle US Small Cap Opportunity R3-GBPC fund. 

Since its inception in February 2022, assets under management have steadily grown to just over £150 million, although the strategy has remained relatively under-recognised among UK retail investors. 

The fund is managed by an experienced investment team led by Bill Hench and supported by Suzanne Franks. The strategy aims to deliver long-term capital growth and uses the Russell 2000 Value index as its primary performance comparator.

What does the fund invest in?

The portfolio is constructed through a disciplined bottom-up investment process centered on fundamental analysis, with the managers seeking attractively valued businesses where a clear pathway to re-rating exists. 

This is typically driven by catalysts such as management change, operational restructuring, product innovation or cyclical recovery.

The strategy combines traditional value investing with a forward-looking assessment of improving business quality and operational momentum.

The fund invests primarily in US small and mid-cap companies, with a particular emphasis on businesses below $3 billion (£2.2 billion) in market capitalisation. 

The managers believe this area of the market remains less efficiently researched, creating opportunities to identify undervalued companies and overlooked market leaders before they become more widely recognised. 

• The smaller company funds with an edge
• My 10-point checklist for picking smaller company shares

The portfolio also maintains meaningful exposure to micro-cap companies, where market inefficiencies can often be even greater.

Diversification is a key feature of the strategy, with the fund typically holding between 180 and 300 positions in order to reduce stock-specific risk while maintaining broad exposure across the US smaller companies universe. 

Positions are generally trimmed once they reach around 1.25% of the portfolio. 

The investment process focuses on companies trading on discounted valuation multiples, supported by improving fundamentals or identifiable operational catalysts.

From a sector perspective, the portfolio currently has its largest exposures in industrials (23.8%), technology (18.7%), healthcare (11.4%) and materials (9.3%), reflecting where the managers continue to identify the most compelling valuation opportunities. 

Key portfolio themes include turnaround situations, improving growth trajectories and businesses positioned to benefit from structural trends such as AI infrastructure spending, semiconductor recovery, defence spending and energy supply disruption.

The strategy maintains a high active share of 86%, meaning the portfolio looks materially different from its comparator index and reinforcing its role as a genuinely active small-cap value strategy.

How has the fund performed?

Since inception in February 2022, the fund has delivered mixed but broadly resilient performance relative to the Russell 2000 Value index. 

While the strategy experienced the challenging backdrop that weighed on the broader US small-cap universe throughout 2022, performance has improved more recently as investor sentiment towards smaller companies and cyclical areas of the market recovered.

The recent improvement in returns means the strategy has delivered 47.5% since inception, outperforming both the Russell 2000 Value index return of 45% and the Morningstar US Small-Cap peer group average return of 33.4%. 

Stock selection within industrials, technology and materials has been a notable contributor to relative performance, particularly as themes such as AI infrastructure spending, semiconductor recovery and increased defence expenditure gained momentum during 2024 and 2025.

Several holdings linked to semiconductor and AI infrastructure spending have performed particularly well. 

Ultra Clean Holdings Inc (NASDAQ:UCTT) and FormFactor Inc (NASDAQ:FORM) have both benefited from rising AI and data-centre investment, supporting demand across the semiconductor supply chain. 

Source: Morningstar Total Returns (GBP) to 30/04/2026. Past performance is not a guide to future performance. Performance data shown is based on the oldest available share class, First Eagle US Small Cap Opp I-UC, to provide the performance track record since inception. The R2 share class is closed for new investors. ii customers can only access it via the R3 now. First Eagle US Small Cap Opp R3-GBPC is the available share class on the ii platform. 

However, the strategy’s exposure to smaller, more cyclical businesses means returns can be more volatile than broader US equity indices, particularly during periods of rising interest rates or economic uncertainty. 

The portfolio’s meaningful exposure to micro-cap companies can also contribute to periods of higher short-term volatility relative to the wider market.

Why are we highlighting this fund?

Overall, the strategy offers differentiated exposure to the US smaller companies universe, targeting attractively valued businesses with the potential to deliver compelling long-term risk-adjusted returns. 

The opportunity set remains particularly favourable in an environment characterised by elevated stock dispersion, where active management and rigorous fundamental analysis can play a more meaningful role in identifying mispriced companies.

While earnings expectations for small-cap companies are improving, with analysts forecasting stronger earnings growth for smaller businesses than for the broader S&P 500 over the coming years, the outlook is not without challenges. 

• Ian Cowie: why I’m a fan of this tech behemoth
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Smaller companies tend to be more domestically focused and more sensitive to financing conditions, meaning a prolonged period of elevated inflation and delayed interest rate cuts could act as a headwind for the asset class.

Although less well-known among UK retail investors, First Eagle Investments is a long-established US asset manager with a heritage dating back to 1864 and approximately $199 billion in assets under management, providing significant investment resources and expertise behind the strategy.

For investors seeking differentiated exposure to the US small-cap value universe, the fund offers a genuinely active and benchmark-differentiated approach, albeit with the higher volatility typically associated with smaller companies investing.

Note: First Eagle US Small Cap Opportunity fund does not form part of ii’s Super 60 or ACE 40 rated lists.

The fund’s instrument page can be viewed here.