Reprinted courtesy of MarketWatch.com.

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I dont make blanket recommendations very often, but Im going to stick my neck out with this one. I m going to name a fund that should be part of virtually every long-term investment portfolio: An index fund in U.S. small-cap value stocks.

My recommendation is really the asset class, which is easy to capture in either of two exchange-traded funds: Vanguard Small Cap Value Fund VBR   -1.07%  or WisdomTree Small Cap Dividend DES   -1.07%  .

Its essential to understand that Im not recommending this asset class for an entire portfolio. On the contrary, it is one of 10 equity asset classes  that most investors should own.

So why do I single out small-cap value stocks? Because the profitable track record of this asset class will probably be more reliable than any other.

Its no secret that small-cap stocks have a long history of outperforming large-cap stocks. And its well known that value stocks have outperformed growth stocks. Both have better long-term track records than the Standard & Poors 500 Index SPX   -1.02%  .

The two ETFs I named above have combined these two powerhouse asset classes into one: Small-cap value stocks. And even though the past is no guarantee of the future, I cant find a single reason for believing this pattern wont continue in the long-term future.

Heres what this means to you: No matter how much or how little of your money you have in equity funds, you should have some of that money invested in small-cap value stocks. Remember, this is some, not all.

This is not a casual prescription. I wont recommend any equity asset class unless it has a long-term record of beating the S&P 500 Index. It must have a record of bouncing back after major losses. And it must have a risk profile that will contribute to a diversified equity portfolio thats no more volatile or risky than the S&P 500 Index itself.

When it comes to investing, I need solid statistical evidence before I am sure that a course of action is the right one. So whats the evidence for my assertion that small-cap value stocks should be a part of every equity portfolio? Lets look.

I have looked at asset-class returns for small-cap value stocks covering 67 separate 20-year periods going back to 1927. On average, those 20-year periods produced a compound rate of return of 16.1%.

In the best period, 1942-1961, the return was 22.7%. In the worst period, 1929-1948, the return was 6.2%. Those are the extremes. Perhaps more important (at least to me) is the fact that in 10 periods, these stocks returned more than 20%. The return was less than 10% in only five of those 67 periods.

By themselves, those numbers dont mean much. But lets look at how they compare with the S&P 500 Index. On average, the indexs compound return in all those 20-year periods was 11.3% (versus 16.1% for small-cap value). In the worst period, 1929-1948, the annual gain was 3.1%. In the best period, 1980-1999, the return was 17.9%.

On the other end of the scale, small-cap value stocks turned in 10 periods with returns over 20%. The S&P 500 Index had zero.

The academic community believes that over long periods of time, the combination of small and value should add three to five annual percentage points to the return of the S&P 500 Index.

I dont think that belief is outdated. Over the 10-year period ended May 22, the Vanguard 500 Index Funds  VFINX   -0.03%  return was 8%; the return of Vanguards Small Cap Value Index Fund VISVX   +0.25%   was 11.0%.

Another fund that tracks this asset class, but with smaller companies and more deeply discounted value companies, is the Dimensional Fund Advisors Small Cap Value Fund  DFSVX   +0.64%  , which is open only to investors through selected investment advisers. This funds 10-year return, through May 22, was 12.3%.

Retirees, who may be battling inflation, can benefit from the superior returns of small-cap value stocks. And although I dont recommend holding only this asset class, I think it is the right place to start for young investors. I often suggest that someones first annual contribution to an IRA can be put in a small-cap value ETF or index fund.

The combination of small and value also has produced favorable long-term results in international companies, in both developed and emerging markets.

Heres the bottom line for me: If your equity investments dont include a small-cap value fund, they should.

Richard Buck contributed to this article.