Heartland is one of those fund companies that quietly chalks up good results without much fanfare. The Milwaukee-based company, led by managers like Bill Nasgovitz, searches for stocks that are out of favor, lightly covered by analysts and trade at deep discounts. It s a strategy that has worked well for the firm over the long haul.

That is evidenced by the $1 billion (assets) Heartland Value Plus fund. The fund stayed in the top 2% of its Morningstar category during the trailing three- and five-year time periods, and, over the last decade, it has averaged an annual return of 11%. All the while, it has kept turnover relatively low and taxes to a minimum.

The Heartland fund made the cut this week on a list we compiled of top-performing small-cap funds. Morningstar tracks 2,092 small-cap funds and share classes. We narrowed that universe by looking for funds that had performance track records over the trailing three- and five-year time periods that put them in the top third of their peer group. In addition, we looked for funds that didn t levy a sales load and charged decent annual fees, or less than 1.5%. We were eventually left with 10 funds.

Back in February, we first called attention to the early 2010 returns of this category by highlighting small-cap value funds. Since then, the group has continued to do well. According to Morningstar, the average small-cap fund is up 11% this year. Only consumer discretionary, real estate and financial-sector funds have performed better in 2010.

Still, it s important to note the risks with small caps stocks we define as having market caps below $2 billion. Trading in these stocks can be volatile, and, as investors go down the market-cap spectrum, the stocks also become vulnerable to manipulation as liquidity issues pop up. Small companies can also have trouble getting access to capital to help them grow. When that funding disappears so, too, does the support for the stock price.

Of course, every company starts out as a small firm. Investors follow these stocks because they think they may stumble across the next Google or Microsoft. Small caps can be acquisition targets for larger competitors, allowing shareholders to realize sizable gains when the deal is done at a premium. In addition, traditional value investors will say research shows that small caps and stocks trading at a discount offer the best returns over the long term.

We would suggest using several criteria when picking a fund in this space. Ideally, you want a fund that has a proven, long-term track record of picking out good small-company stocks. Although there is no strong correlation between returns and manager tenure, we would also suggest looking for fund managers who have been investing in small caps for many years, as their extended time on the job may help you sleep easier at night.

The criteria: The funds on our list are part of Morningstar s small equity box category. They are open to new money, require a minimum investment under $5,000 and charge an annual expense ratio less than 1.5%. In addition, they had track records over the trailing three- and five-year time periods that put them in the top 33% of their peer group. As usual, we did not include funds that charge a sales load.