Small cap stocks have enjoyed a solid run on the bourse so far this year. Russell 2000, the well-known index of stocks with lower capitalization, outperformed the S&P 500, the Dow and the Nasdaq by a significant margin. In fact, it continues to hover slightly below its all-time high reached in Jul 2015.

While some say that lack of alternatives among different asset classes has increased demand for small caps, others believe it has more to do with their attractive valuations. Nevertheless, the increased stability of U.S. economy compared to other large economies benefitted small-cap stocks, while a surge in oil prices contributed to the rally of small independent energy companies.

Hence, it will be prudent to invest in small-cap mutual funds at the moment. This funds focus on realizing an appreciable amount of capital growth by investing in stocks that are projected to rise over the long term.

Economy Remains Stable

While service sector expanded at the slowest pace in August since 2010, manufacturing activity contracted during the same period. Pace of hiring also slowed down in the month. Such developments have led many to question if the economy’s recovery is faltering. But, comments from San Francisco Fed President John Williams have dispelled such concerns.

He said that the economy is doing reasonably well. Meanwhile, he added that unemployment is likely to fall from the current level of 4.9% to 4.5% next year. Williams also believes that inflation will achieve the Fed’s target of 2% within the next two years. Additionally, the Fed’s Beige Book has already showed that most of the districts signaled “that national economic activity continued to expand at a modest pace” during the July-August period.

Moreover, a slew of dismal economic reports dimmed possibilities of an imminent rate hike, which helped debt-dependent sectors rake in gains (read more: Buy 4 REIT Mutual Funds on Waning Prospects of a Rate Hike).

Consumer Confidence Surges

Meanwhile, consumer confidence surged during the month of August, indicating that the economy is on the recovery path after a dismal show during the first half of the year. In August, consumer confidence surged to its highest level in 11 months.

The consumer confidence index increased 4.4 points to 101.1, well above the expected level of 97.4. Additionally, the expectations index increased to 86.4 but remained below the highest level achieved since the end of the 2008 recession.

Oil Gains, Inventory Declines

Oil prices also remained stable for quite some time. The WTI crude advanced 4.5% to settle at $47.62 a barrel on Thursday, while Brent crude gained 4% to close at $49.99 a barrel.

A 14.5 million barrel drop in domestic crude inventories last week drove oil prices. This was the steepest fall since 1999 and the second highest decline since 1982, according to the U.S. Energy Information Administration.

Abundant oil supply amid lackluster demand has been weighing on prices for a considerable period of time. However, such concerns are a thing of the past, courtesy of the unforeseen decline in stockpiles (read more: 4 Energy Mutual Funds to Buy as Oil Nears 7-Week High).

4 Small-Cap Growth Mutual Funds to Buy Now

While the rebound in oil and a more or less steady economic scenario boosted small caps, it will be prudent to invest in mutual funds exposed to such stocks. We have chosen fundamentally solid small cap growth mutual funds that will make the most of this bullish run. Such funds focus more on capital appreciation over the long term and are good choices for investors seeking diversification across different sectors and companies.

We have selected four small-cap growth mutual funds that have given positive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Brown Advisory Small-Cap Growth Investor (BIASX Quick QuoteBIASX - Free Report) invests a large portion of its net assets in equity securities of small domestic companies. BIASX’s 3-year and 5-year annualized returns are 10.5% and 15.4%, respectively. Annual expense ratio of 1.13% is lower than the category average of 1.40%. BIASX has a Zacks Mutual Fund Rank #1.

Bridgeway Small-Cap Growth invests the majority of its net assets in stocks from among those in the small-cap growth category at the time of purchase. BRSGX’s 3-year and 5-year annualized returns are 11.9% and 16.7%, respectively. Annual expense ratio of 0.94% is below the category average of 1.40%. BRSGX has a Zacks Mutual Fund Rank #1.

Fidelity Advisor Small Cap Growth A (FCAGX Quick QuoteFCAGX - Free Report) invests a major portion of its assets in securities of companies with small market capitalizations. The fund invests in companies that Fidelity Management & Research Company believes have above-average growth potential. FCAGX’s 3-year and 5-year annualized returns are 10.5% and 14.7%, respectively. Annual expense ratio of 1.20% is lower than the category average of 1.40%. FCAGX has a Zacks Mutual Fund Rank #1.

Franklin Small Cap Growth A (FSGRX Quick QuoteFSGRX - Free Report) invests a lion’s share of its net assets in the equity securities of small cap companies. FSGRX’s 3-year and 5-year annualized returns are 6.7% and 13.9%, respectively. Annual expense ratio of 1.11% is lower than the category average of 1.40%. FSGRX has a Zacks Mutual Fund Rank #2.

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