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Mutual Fund Commentary

When investors have the willingness to take short term positions and the ability to bear a certain degree of risk, small-cap funds could be the correct choice. These funds generate significant demand driven sales during a market upswing, which lead to an increase in their prices. Smaller firms also look to continuously reinvest their profits back into their business. This reassures shareholders of superior performance and higher profit potential from such companies. Small Cap funds therefore make excellent additions to a well-diversified portfolio.

Below we will share with you 5 top rated small-cap mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all small-cap funds, investors can click here to see the complete list of funds.

Putnam Small Cap Growth A (PNSAX - MF report) seeks long-term capital appreciation by investing in small-cap companies. The fund focuses on acquiring common stocks of domestic companies with an emphasis on growth stocks. This small-cap mutual fund has a three year annualized return of 29.04%.

The fund manager is Pam Gao and she has managed this small-cap fund since 2010.

Homestead Small Company Stock (HSCSX - MF report) invests a large proportion of its assets in undervalued stocks of small companies with significant growth potential. The market capitalization of these companies must be identical to firms which are part of the Russell 2000 index. This small-cap mutual fund has a three year annualized return of 38.13%.

The small-cap mutual fund has a minimum initial investment of $500 and an expense ratio of 1.08% compared to a category average of 1.45%.

AllianceBernstein Small Cap Growth A (QUASX - MF report) seeks capital appreciation over the long term. The fund invests heavily in equity securities of small-cap companies with market capitalizations of less than $10 million. At any given time the fund invests in between 95 to 125 companies. This small-cap mutual fund has a three year annualized return of 38.3%.

Wen-Tse Tseng is the fund manager and he has managed this small-cap mutual fund since 2006.

DWS Small Cap Growth A (SSDAX - MF report) invests a large share of its assets in domestic small cap companies. Not more than 20% of its assets may be utilized to purchase foreign and large cap stocks. This small-cap mutual fund has a three year annualized return of 37%.

As of February 2012, this small-cap mutual fund held 104 issues, with 3.16% of its total assets invested in Central Cash Management Funds.

Virtus Small-Cap Sustainable Growth A (PSGAX - MF report) seeks capital appreciation over the long term. The fund invests in small cap companies while maintaining the risk profile of the S&P 500 which consists entirely of large cap companies. This small-cap mutual fund has a three year annualized return of 31.94%.

The small-cap mutual fund has a minimum initial investment of $2,500 and an expense ratio of 1.67% compared to a category average of 1.47%.

To view the Zacks Rank and past performance of all small-cap mutual funds, investors can click here to see the complete list of funds.

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 http://www.zacks.com/funds.

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