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5 Growth Funds to Buy on Highest GDP Growth Since 2014

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The U.S. economy expanded at a better pace in the third quarter of this year than was earlier estimated, leading to the best quarterly GDP growth in the last three years. In its second estimate, the Department of Commerce upwardly revised economic growth for the third quarter. The report highlighted moderate growth in consumer spending, a rise in business investment and an expansion in government spending.

Given this performance, it is likely that the U.S. economy will register a steady growth pace even in the final quarter of this year. With the domestic economy witnessing stable expansion, reaching full capacity, growth mutual funds have emerged as prudent investment options.

Q3 GDPAdvances in Second Estimate

In its second estimate, GDP increased from the previous estimate of 3% to 3.3%, the best since the third quarter of 2014. It also improved from the second quarter’s pace of 3.1%. Moreover, corporate profits after tax increased 5.8% year over year, after a 0.1% uptick in the second quarter of this year.

Additionally, both consumer spending and business investment gained traction in the third quarter. Consumer spending, which accounts for a bulk of U.S. economic output, decreased from 2.4% to 2.3% in the second estimate. Despite moderation in consumer spending, strong increase in business investment and a rebound in government expenditure gave a boost to the GDP.

Business investment registered strong increase, which outweighed the fall in consumer spending. Business investment witnessed an increase of 10.4%, its fastest growth pace in the last three years. Strong spending in equipment and software boosted business investment in the third quarter. According to the second estimate, business investment contributed 1.2% to total GDP growth, higher than previous estimate of around 1% contribution.

Additionally, government spending increased 0.4%, after reporting a decline of 0.1% in the advance estimate for the third quarter. Government expenditure managed to increase, after contracting in the first two quarters of this year.

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 small-to-medium market capitalization and have significant exposure to the domestic market. 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 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 U.S. 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) 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.

JPMorgan Small Cap Growth PGSGX seeks long-term growth of capital. PGSGX invests heavily in securities issued by small-capitalization companies. The fund also invests in securities of emerging growth companies. The small-capitalization companies are those whose market capitalization is similar to that of Russell 2000 Growth Index stocks.

PGSGX has YTD returns of 37% and an expense ratio of 1.24% compared with the category average of 1.34%.

TCM Small Cap Growth TCMSX invests a large share of its assets in companies having market capitalization similar to those listed on the Russell 2000 Index. TCMSX seeks growth of capital over the long term. 

TCMSX has YTD returns of 24.7% and an expense ratio of 0.95% compared with the category average of 1.34%.

Hartford Small Company HLS Fund IA HIASX seeks appreciation of capital. HIASX primarily invests its assets in common stocks issued by small-cap companies. The fund may also invest almost one-fifth of its assets in securities of non-U.S. issuers. Here, small-capitalization companies are those whose market capitalization falls within the collective range of the Russell 2000 and S&P SmallCap 600 indices.

HIASX has YTD returns of 25.4% and an expense ratio of 0.76% compared with the category average of 1.34%.

Scout Mid Cap Fund (UMBMX - Free Report) seeks capital appreciation for the long run. UMBMX invests a majority of its assets in securities of mid-cap companies, whose market cap are similar to those listed on the Russell Midcap Index. The fund maintains a diversified portfolio.

UMBMX has YTD returns of 23.9% and an expense ratio of 1.03% compared with the category average of 1.06%.

T. Rowe Price Mid-Cap Growth Advisor PAMCX seeks appreciation of capital for the long run. PAMCX maintains a diversified portfolio by investing in common stocks of mid-cap companies, earnings of which are expected to have above-average growth prospects. Companies that fall within the range of the Russell Midcap Growth Index or S&P MidCap 400 Index are considered mid cap.

PAMCX has YTD returns of 24.8% and an expense ratio of 1.02% compared with the category average of 1.22%.

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