After a brief period of uncertainty following President Trump’s surprise win, investors reaffirmed their faith in the promises of the new administration. Optimism over Trump’s proposed market-friendly policies including tax cuts, financial de-regulation, increase in infrastructure spending and job creations boosted all the key indexes during the first month of his presidency.
During this period, the S&P 500 gained 3.5%, registering its best performance since 1997, when Bill Clinton won his second term. The S&P MidCap 400 gained 3.6% during the same period, better than the S&P 500’s performance. Following recent gains by the benchmark mid-cap index, adding mid-cap growth mutual funds to one’s portfolio might be a suitable investment option.
What Drove the Mid-Cap Index Higher?
Domestic Economy in Focus
In his victory speech, Trump said that the current economic growth pace of 2% will be doubled and almost 25 million jobs will be created in the coming 10 years. At a press conference on Feb 16, Trump talked about recent market gains and said that they were “good for jobs.”
Further, Trump said that he will not only boost military spending but will also revive the domestic manufacturing sector. Also, Trump’s deregulation proposals and domestic-focused policies are likely to boost the domestic economy’s pace of growth.
Tax Cuts and Higher Infrastructure Spending
Recently, in a meeting with some major U.S. airline executives President Trump said his administration will be "lowering the overall tax burden on American business.” Trump added that he will announce a “phenomenal” tax plan, which invariably added to the optimism in the markets.
In contrast to large-cap companies which generate more than 30% of their sales from abroad, mid-cap companies generate more than 80% of their revenues from domestic operations. So, Trump's move to trim corporate tax rate to 15% from 35% and relax regulations is expected to benefit mid caps.
Silver Lining in Trump’s Travel Ban
Trump’s first month in office was not all about roses, as a section of market watchers remain skeptical over Trump’s “protectionist” approach. Moreover, Trump’s steps to restrict immigration weighed on the global markets. However, such a move may help mid-cap companies, since their business operations are primarily related to the domestic market.
As compared to their large-cap counterparts, mid-cap companies operate their business more in the domestic markets. In this context, funds having strong exposure to mid-cap companies are an ideal investment choice as they are not susceptible to volatility in broader markets.
Buy These 4 Mid-Cap Growth Mutual Funds
The S&P MidCap 400 Index gained following Trump’s tax cut plans, looser financial regulations and higher spending. Following these improvements in the markets, investors may consider mid-cap growth mutual funds. Growth funds focus on realizing an appreciable amount of capital growth by investing in stocks of firms whose value is projected to rise over the long term. Also, mid-cap funds are expected to provide better returns than large-cap funds and tend to have lesser risk unlike its small-cap counterparts.
Additionally, mid-cap growth mutual funds posted a return of 4.17% in the last one month, while small-cap growth funds registered gains of 3.98%, according to Morningstar. Also, mid-cap growth mutual funds gained 5.40% in the last three months, much better than a rise of only 3.88% registered by small-cap growth funds during the same period.
In this scenario, we have selected four mid-cap growth mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy). These funds also have impressive one-month and three-month returns. Also, these funds have a low expense ratio and their minimum initial investment is within $5000.
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.
VALIC Company II Mid Cap Growth (VAMGX - Free Report) invests a bulk of its assets in securities of companies having market capitalizations similar to those listed in the Russell Midcap Index.This fund has one-month and three-month returns of 5.2% and 7.7%, respectively. It has an expense ratio of 0.84% as compared to the category average of 1.29%.
MassMutual Select Mid Cap Growth Equity II Administrative (MMELX - Free Report) invests a majority of its assets in equity securities of mid-cap companies which are expected to have a high level of growth potential. This fund has one-month and three-month returns of 4.6% and 6.3%, respectively. It has an expense ratio of 1.03% as compared to the category average of 1.29%.
Dreyfus Mid-Cap Growth F invests a lion’s share of its assets in growth companies having market capitalizations within the universe of the Russell Midcap Growth Index. This fund has one-month and three-month returns of 4.2% and 7%, respectively. It has an expense ratio of 1.14% as compared to the category average of 1.29%.
Principal MidCap Growth J (PMGJX - Free Report) invests a minimum of 80% of its assets in equities of mid-cap firms. PMGJX seeks capital appreciation over the long term. This fund has one-month and three-month returns of 4.1% and 5.7%, respectively. It has an expense ratio of 1.03% as compared to the category average of 1.29%.
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