Value investors like companies that are cheap, ugly and diseased. As shareholders go running from a stock, these investors start to get interested.

Many of the well-known value investing books point to a few common stock-picking traits: Start with small(ish) companies trading below their book value that have been spun off from a corporate parent or have gone through reorganization or have little analyst coverage. Then look to see if the market is undervaluing assets and earnings. If that s the case, buy in and then wait for the market to discover them again.

There are three classes of value mutual funds we keep an eye on: large, mid and small. This week we are focusing on that last one. Morningstar tracks 502 funds in its small-cap value category. We searched for funds that charged below-average fees and expenses and sported track records that put them in the top 40% of their peer group over the trailing three- and five-year time periods. That left us with the 12 funds on the table below.

If you are unfamiliar with the value label, here is a quick explanation. Value stocks trade at a discount to the broad market (usually at a single-digit P/E). Their counterparts, growth stocks, trade at higher multiples because investors are willing to pay a premium for a possibility of higher returns. Studies have found that over the long run, value stocks tend to outperform the market and growth issues.

Typically, diversified portfolios may have a 10% to 20% exposure to small caps. This universe of stocks can be risky because it doesn t enjoy the same access to capital or the economies of scale that bigger companies do. But remember this: Every big company has to start as a small one. At one point Microsoft wasn t the giant it is today. If you own an index fund that tracks the Wilshire 5000, you will already have some exposure to small caps, so check your portfolio s mix.

Even if you don t buy in, checking out the portfolios of proven funds can be a revealing exercise. It can provide some insights into which companies or industries fund managers are anticipating to recover over the next few years.

The criteria: The funds on the table below are classified as small-cap value by Morningstar. They are open to new money, require a minimum investment under $5,000 and charge an annual expense ratio of less than 1.50%. In addition, the funds have track records that put them in the top half of that category. As usual, we did not include funds that charge sales loads.