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Mutual Fund Commentary

After weeks of uncertainty that prevailed over policy statements from the Fed and Bank of Japan (BOJ), markets slowly stabilized. Although some gyrations are expected to remain in October, recent data showed that in the second quarter, the U.S. economy expanded at its best pace in nearly two years.

An increase in the third estimate of non-residential fixed investment gave a boost to the second-quarter GDP. Also, stronger exports and a rise in personal consumption expenditures (PCE) had a positive impact on GDP. So, with the domestic economy witnessing stable expansion last quarter, growth mutual funds could be prudent investment options.

Q2 GDPAdvanced in “Third Estimate”

In its third estimate, GDP increased to 1.4% from the previous estimate of 1.1%. One of the key factors that improved the economy is an increase in non-residential fixed investment in the second quarter after a decline in the first quarter. As per the third estimate, the non-residential fixed investment rose 1% in the second quarter after falling 3.4% in the first quarter. Also, non-residential fixed investment was way better than the previous second-quarter estimate of a 0.9% drop.

Though both exports and imports increased in the second quarter, gains in export outshone growth in imports. After falling 0.7% in the first quarter, exports advanced 1.8% in the second quarter. Imports rose 0.2% in the second quarter compared with a decrease of 0.6% in the first quarter. But exports registered a better increase than imports. Trade contributed 0.18% to overall economic growth last quarter. After a sluggish 2015, growth in trade came as a breather for markets.

Another factor that enhanced domestic growth is a stable increase in PCE, which holds around two-third of domestic spending. In the second quarter PCE increased 4.3%, which is way better than a rise of only 1.6% in the first quarter. Notably, PCE registered its biggest percentage increase since the fourth quarter of 2014.

Why Choose Growth Mutual Funds?

With rate hike related uncertainty gradually fading away and domestic economy starting to show signs of stability, investing in growth funds can be a wise decision. Growth funds become a natural choice for investors, who prefer capital appreciation over the long term over dividend payouts.These funds generally invest in the assets of those companies that carry an above-average growth potential.

Here, we have selected growth funds with varying market caps, a nice mix of which makes a portfolio profotable. Small-cap funds generally have higher risk exposure but are good choices for investors seeking diversification across different sectors and companies. Small-cap companies have lesser international exposure and are most likely to benefit from this recent economic expansion. Mid-cap funds are not very susceptible to volatility in broader markets, thus being ideal investments.Large-cap funds are perfect investment options for those in the pursuit of high return that comes with lower risk than small-cap and mid-cap funds.

Buy These 4 Growth Mutual Funds

Following these improvements in the economy, investors may consider growth mutual funds. We have selected four growth mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging year-to-date, one-year and three-year annualized returns. They also have minimum initial investment within $5000 and low expense ratios.

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.

Brown Advisory Small-Cap Growth Investor (BIASX - Free Report) invests a large chunk of its assets in equity securities of small-cap companies domiciled in the U.S. BIASX focuses on acquiring securities of companies that are believed to have strong growth prospects.

BIASX has an annual expense ratio of 1.13%, lower than the category average of 1.37%. The fund has YTD, one-year and three-year annualized returns of 10.6%, 17.3% and 8.5%, respectively.

Vanguard US Growth Investor (VWUSX - Free Report) seeks long-term growth of capital. VWUSX invests in large-capitalization stocks of domestic companies with records of superior growth. VWUSX focuses on companies which have strong positions in their markets and reasonable financial strength.

VWUSX has an annual expense ratio of 0.47%, lower than the category average of 1.21%. The fund has YTD, one-year and three-year annualized returns of 2.4%, 7.2% and 11.4%, respectively.

Dreyfus Mid-Cap Growth F (FRSPX - Free Report) invests a lion’s share of its assets in growth companies having market capitalizations within the universe of the Russell Midcap Growth Index. FRSPX may invest a maximum of 30% of its assets in securities of non-US companies. FRSPX may invest up to 25% of its assets in a particular foreign country.

FRSPXhas an expense ratio of 1.14% as compared to the category average of 1.30%. The fund has YTD, one-year and three-year annualized returns of 4.6%, 5% and 5.3%, respectively.

Putnam Small Cap Growth A (PNSAX - Free Report) invests in common stocks of companies having market capitalizations within the range of the Russell 2000 Growth Index.  PNSAX invests in securities of companies whose earnings growth is expected to outpace the same of its peers.

PNSAX has an expense ratio of 1.22% as compared to the category average of 1.37%. The fund has YTD, one-year and three-year annualized returns of 3.9%, 4.8% and 4.2%, respectively.

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