There are cheap stocks and there are undervalued stocks and the twain don't necessarily meet, especially in the dicey world of small-cap stocks.

Value investing is the art of finding stocks that you think are trading far below what you consider their true value. Problem is, there are tons of stocks that look cheap relative to their peers, expected earnings, or the overall market. Most of these are probably cheap for a reason, but some are simply undervalued for one reason or another and can be a good investment. It's especially tough to discern cheapness from value among small-cap stocks -- those with market capitalizations below $1.5 billion -- because this area doesn't get as much coverage from Wall Street analysts.

That said, overlooked small-cap value funds can buoy a tech-heavy portfolio when that once-hot sector cools like it has this year. Since Jan. 1, the average small-cap value fund is up almost 10% in a year when most indices and funds are underwater.

Due to the dearth of information on small-caps, if you're looking to invest 5% or 10% of your portfolio in this oft-overlooked pocket of the market, it's a good idea to do so through a mutual fund, preferably one with an experienced manager. To that end, today the

Daily Screen

is sifting this category for funds that beat their average peer since Jan. 1 and over the last five years, with the same manager at the helm. Here's a top-10 list of funds that made the cut, ranked by their year-to-date returns.

At the top of the list you'll find the broker-sold

(SSRAX)

State Street Research Aurora fund, where Rudy Kluiber has held the reins since its 1995 inception. He spread the fund's assets among nearly 300 stocks. Despite carrying such a broad portfolio, he's managed to post solid results. The fund beats at least 90% of its peers over the last one-, three- and five-year periods, according to

Morningstar

. Its 28.3% five-year annualized return beats the S&P 500 by more than nine percentage points.

Another name that jumps off our list is the no-load runner-up

(RYLPX)

Royce Low Priced Stock fund, where Charles Royce and W. Whitney George shared the reins since 1993. In January Royce left, but George will continue to focus on stocks of companies that generate strong cash and trade for less than $15 a share. More specifically, George also looks for companies that also have a growth catalyst, like a new management team or product line.

The fund beats at least 89% of its peers over the last one-, three- and five-year periods. Its 18.7% five-year annualized return just about matches the

S&P 500

.

This list also includes two former Morningstar Managers of the Year: Marty Whitman (

(TAVFX) - Get Report

Third Avenue Value) and Bill Dutton (

(SKSEX) - Get Report

Skyline Special Equities).

With the no-load Third Avenue Value fund, Whitman, who won the award in 1990 when he started the fund, trolls the market looking for profoundly unloved stocks he thinks are selling at deep discounts to their true value. That's led to an uneven portfolio with significant stakes in battered tech stocks and sleepier financial services stocks. The eclectic approach is looking good. The fund's 19.1% 10-year annualized return beats the S&P 500 by more than one percentage point and more than 90% of the fund's peers.

Bill Dutton, who won the award in 1992 and has run Skyline Special Equities since 1987, is coming off two awful years in 1998 and 1999 when his fund lost money. The losses stemmed from his strict criteria, which typically excluded the tech sector, and since then he's broadened the fund's scope a bit with solid results. The fund still averages a 0.9% loss over the last three years, but its 25.6% gain in the last 12 months has bolstered the battered fund.

If you're curious about what stocks propelled our leaders, we've pulled that list together. Since there are more than 5,000 small-cap stocks out there, though, there's understandably little consensus. We've combined the leading funds' portfolios to calculate their 10 favorite stocks. No stock is held by more than five of our 10 leading funds and none makes up 1% of the combined portfolio, according to Morningstar.

Editorial Assistant Dan Bernstein contributed to this article.