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Banking on an improving U.S. economy, small-cap mutual funds are providing higher returns than large- and mid-cap ones. This is because small-cap funds are known for their higher domestic exposure than their large- and mid-cap counterparts. Hence, investing in these funds should lead to impressive returns against the current backdrop.
Outperforming Small-Cap Funds
According to Morningstar, small-cap funds clearly outperformed mid- and large-cap funds over the past one-month, three-month and year-to-date frames. While small-cap funds succeeded in providing average return of 3.2% over the last one-month period, mid- and large-cap funds managed to gain only 2.4%. Moreover, small-cap funds’ trailing three-month return of 8.2% clearly outpaced 5.8% and 4.4% gains of mid- and large-cap mutual funds.
Impressive returns have helped small-cap funds to register average return of 6.6% in the year-to-date frame. This is also higher than 5.8% and 4.2% returns posted by the mid- and large-cap alternatives. It is widely believed that an improving domestic economy and less international exposure supported the outperformance of the small-cap funds.
U.S. Economy Back on Track
June’s encouraging jobs report, ISM manufacturing and services indexes, and consumer spending data indicated that the U.S. economy is on a path of recovery after witnessing a sluggish first quarter. According to the U.S. Department of Labor, the economy saw healthy volume of 287,000 job additions in June after adding only 11,000 jobs in May. Moreover, the rejoining of 400,000 Americans led the unemployment rate to rise to 4.9% from 4.7% in May.
Moreover, manufacturing and services sectors are also experiencing impressive growth. While, the Institute for Supply Management (ISM) manufacturing index increased a 16-month high of 53.2% in June, ISM Services Index advanced to 56.5%, witnessing its best rise in the last seven months. Out of 18 manufacturing industries, 12 reported growth leading the ISM Manufacturing Index higher.
Separately, the Federal Reserve reported that consumer credit increased $18.6 billion in May, well above April’s increase of 4.5%. It rose at an annual rate of 6.2%. Also, the Commerce Department reported that consumer spending rose 0.4% in May from April, preceded by a 1.1% rise in April, which was the highest gain in around seven years.
6 Small-Cap Mutual Funds to Buy
Given this encouraging scenario, we have highlighted two mutual funds each from three small-cap categories – value, growth and blend – that have a Zacks Mutual Fund Rank #1 (Strong Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
These funds have encouraging year-to-date and three-month returns. The minimum initial investment is within $5000. Also, these funds have favorable expense ratios and no sales loads.
Small-Cap Value Funds
Bridgeway Omni Small-Cap Value N (BOSVX - Free Report) invests a large chunk of its assets in equity securities of small-cap companies and may also invest not more than 15% of its assets in non-U.S. securities. BOSVX has year-to-date and three-month returns of 9.2% and 6.8%, respectively. It has an expense ratio of 0.60%.
Prudential QMA Small-Cap Value Z (TASVX - Free Report) invests the lion’s share of its assets in equity securities of companies having market capitalization similar to those listed in the Russell 2000 Index or the Standard & Poor's SmallCap 600 Index. TASVX has year-to-date and three-month returns of 9.9% and 6%, respectively. It has an expense ratio of 0.75%.
Small-Cap Growth Funds
T. Rowe Price QM US Small-Cap Growth Equity (PRDSX - Free Report) invests the major portion of its assets in securities of domestic small-cap companies that are believed to have growth potential. PRDSX has year-to-date and three-month returns of 5.3% and 6.6%, respectively. It has an expense ratio of 0.82%.
TCM Small Cap Growth (TCMSX - Free Report) invests in securities of firms with market capitalization within the gamut of the Russell 2000 Index. TCMSX has year-to-date and three-month returns of 5% and 7.8%, respectively. It has an expense ratio of 0.93%.
Small-Cap Blend Funds
Fidelity Stock Selector Small Cap (FDSCX - Free Report) invests a large chunk of its assets in common stocks of small-cap companies across a wide range of sectors. FDSCX has year-to-date and three-month returns of 4.6% and 4.9%, respectively. It has an expense ratio of 0.76%.
Vanguard Strategic Small-Cap Equity Investor (VSTCX - Free Report) uses a blend strategy to invest in securities of small-cap companies with an objective to maintain an identical risk profile as the MSCI US Small Cap 1750 Index. VSTCX has year-to-date and three-month returns of 6.5% and 4.5%, respectively. It has an expense ratio of 0.58%.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at https://www.zacks.com/funds.
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Small-Cap Mutual Funds Excel: 6 Solid Choices
Banking on an improving U.S. economy, small-cap mutual funds are providing higher returns than large- and mid-cap ones. This is because small-cap funds are known for their higher domestic exposure than their large- and mid-cap counterparts. Hence, investing in these funds should lead to impressive returns against the current backdrop.
Outperforming Small-Cap Funds
According to Morningstar, small-cap funds clearly outperformed mid- and large-cap funds over the past one-month, three-month and year-to-date frames. While small-cap funds succeeded in providing average return of 3.2% over the last one-month period, mid- and large-cap funds managed to gain only 2.4%. Moreover, small-cap funds’ trailing three-month return of 8.2% clearly outpaced 5.8% and 4.4% gains of mid- and large-cap mutual funds.
Impressive returns have helped small-cap funds to register average return of 6.6% in the year-to-date frame. This is also higher than 5.8% and 4.2% returns posted by the mid- and large-cap alternatives. It is widely believed that an improving domestic economy and less international exposure supported the outperformance of the small-cap funds.
U.S. Economy Back on Track
June’s encouraging jobs report, ISM manufacturing and services indexes, and consumer spending data indicated that the U.S. economy is on a path of recovery after witnessing a sluggish first quarter. According to the U.S. Department of Labor, the economy saw healthy volume of 287,000 job additions in June after adding only 11,000 jobs in May. Moreover, the rejoining of 400,000 Americans led the unemployment rate to rise to 4.9% from 4.7% in May.
Moreover, manufacturing and services sectors are also experiencing impressive growth. While, the Institute for Supply Management (ISM) manufacturing index increased a 16-month high of 53.2% in June, ISM Services Index advanced to 56.5%, witnessing its best rise in the last seven months. Out of 18 manufacturing industries, 12 reported growth leading the ISM Manufacturing Index higher.
Separately, the Federal Reserve reported that consumer credit increased $18.6 billion in May, well above April’s increase of 4.5%. It rose at an annual rate of 6.2%. Also, the Commerce Department reported that consumer spending rose 0.4% in May from April, preceded by a 1.1% rise in April, which was the highest gain in around seven years.
6 Small-Cap Mutual Funds to Buy
Given this encouraging scenario, we have highlighted two mutual funds each from three small-cap categories – value, growth and blend – that have a Zacks Mutual Fund Rank #1 (Strong Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
These funds have encouraging year-to-date and three-month returns. The minimum initial investment is within $5000. Also, these funds have favorable expense ratios and no sales loads.
Small-Cap Value Funds
Bridgeway Omni Small-Cap Value N (BOSVX - Free Report) invests a large chunk of its assets in equity securities of small-cap companies and may also invest not more than 15% of its assets in non-U.S. securities. BOSVX has year-to-date and three-month returns of 9.2% and 6.8%, respectively. It has an expense ratio of 0.60%.
Prudential QMA Small-Cap Value Z (TASVX - Free Report) invests the lion’s share of its assets in equity securities of companies having market capitalization similar to those listed in the Russell 2000 Index or the Standard & Poor's SmallCap 600 Index. TASVX has year-to-date and three-month returns of 9.9% and 6%, respectively. It has an expense ratio of 0.75%.
Small-Cap Growth Funds
T. Rowe Price QM US Small-Cap Growth Equity (PRDSX - Free Report) invests the major portion of its assets in securities of domestic small-cap companies that are believed to have growth potential. PRDSX has year-to-date and three-month returns of 5.3% and 6.6%, respectively. It has an expense ratio of 0.82%.
TCM Small Cap Growth (TCMSX - Free Report) invests in securities of firms with market capitalization within the gamut of the Russell 2000 Index. TCMSX has year-to-date and three-month returns of 5% and 7.8%, respectively. It has an expense ratio of 0.93%.
Small-Cap Blend Funds
Fidelity Stock Selector Small Cap (FDSCX - Free Report) invests a large chunk of its assets in common stocks of small-cap companies across a wide range of sectors. FDSCX has year-to-date and three-month returns of 4.6% and 4.9%, respectively. It has an expense ratio of 0.76%.
Vanguard Strategic Small-Cap Equity Investor (VSTCX - Free Report) uses a blend strategy to invest in securities of small-cap companies with an objective to maintain an identical risk profile as the MSCI US Small Cap 1750 Index. VSTCX has year-to-date and three-month returns of 6.5% and 4.5%, respectively. It has an expense ratio of 0.58%.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at https://www.zacks.com/funds.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>