The U.S. economy expanded at a better pace in the second quarter of this year, than was earlier estimated, ending up with the best quarterly GDP growth in more than two years. In its second estimate, the Department of Commerce upwardly revised economic growth for the second quarter. The report highlighted a strong increase in consumer spending and a rise in business investment. Given this performance, it is likely that the U.S. economy will register a steady growth pace even in the third quarter. With the domestic economy witnessing stable expansion, growth mutual funds have emerged as prudent investment options.
Q2 GDP Advanced in Second Estimate
In its second estimate, GDP increased from the previous estimate of 2.6% to 3%, marking the best growth pace since the first quarter of 2015. It also beat consensus estimate of 2.7% and improved from the first quarter’s pace of 1.2%. Moreover, corporate profits after tax increased 8.1% year over year in the second quarter of 2017, despite falling 1.4% from the first quarter of this year.
Additionally, both consumer spending and business investment gained traction in the second quarter. Consumer spending, which accounts for a bulk of U.S. economic output, was revised upward from the preliminary reading of 2.8% to 3.3% in the second estimate, registering its best increase in a year. Increase in spending on cell phones, motor vehicles, utilities and housing pushed up consumer spending for the quarter. Also, business investment rose 6.9% in the second quarter, registering strong performance for two consecutive quarters.
Further, favorable business spending and retail sales data have led most economists to predict that the U.S. economy will maintain a growth pace of more than 3% in the third quarter. Also, according to the ADP National Employment Report, private companies created 237,000 jobs in August, marking the best pace since March. Steady private payrolls data bode well for the labor market and eventually for the economy.
Why Choose Growth Mutual Funds?
With the U.S. economy registering steady growth in recent times, growth funds have become a natural choice for investors, who prefer capital appreciation over the long term to 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 profitable. Small-cap funds generally have a higher risk exposure but are good choices for investors seeking diversification across different sectors. Small-cap companies have lesser international exposure and are most likely to benefit from the recent economic expansion. Mid-cap funds are not highly susceptible to volatility in broader markets and bear better growth potential than their large-cap counterparts, making them ideal investments.
Buy These 5 Growth Mutual Funds
Following these improvements in the economy, investors may consider growth mutual funds. According to Morningstar, the mid-cap and small-cap growth mutual funds have one-year annualized returns of 15% and 16%, respectively. Here, we have selected five growth mutual funds that have a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging year-to-date (YTD) and one-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.
Hartford Small Cap Growth HLS IB (HBSGX - Free Report) invests a bulk of its assets in common stocks of small-cap companies. HBSGX looks for companies that are expected to have above-average growth prospects. The fund may also invest a maximum of 20% of its assets in non-U.S. companies as well as non-dollar securities.
HBSGX has YTD and one-yearannualized returns of 10.1% and 16.7%, respectively, and an expense ratio of 0.90% compared with the category average of 1.41%.
JPMorgan Small Cap Growth A (PGSGX - Free Report) invests a huge part of its assets in securities of small-cap companies. Small-cap companies are those that have market cap similar to those on the Russell 2000 Growth Index. PGSGX seeks long-term capital growth primarily from a portfolio of equity securities of small-capitalization and emerging growth companies.
PGSGX has YTD and one-year annualized returns of 24.2% and 25.9%, respectively, and an expense ratio of 1.25% compared with the category average of 1.41%.
ClearBridge Small Cap Growth A (SASMX - Free Report) seeks capital appreciation over the long run. SASMX invests a large portion of its assets in equities of small cap firms. SASMX invests in domestic companies that are believed to have impressive growth prospects.
SASMX has YTD and one-year annualized returns of 12.1% and 14.2%, respectively, and an expense ratio of 1.24% compared with the category average of 1.41%.
Commerce MidCap Growth (CFAGX - Free Report) seeks growth of capital for the long run. CFAGX invests the lion’s share of its assets in common stocks of mid-cap companies, which are included on the Russell Midcap Growth Index. The fund primarily invests in stocks of those companies whose price volatility was below the average level in the past.
CFAGX has YTD and one-year annualized returns of 12.3% and 12.7%, respectively, and an expense ratio of 0.87% compared with the category average of 1.13%.
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. MMELX seeks capital appreciation for the long run.
MMELX has YTD and one-year annualized returns of 16.9% and 17.3%, respectively, and an expense ratio of 1.03% compared with the category average of 1.13%.
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