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Russell 2000 Hits Third Straight Record Close: 5 Fund Picks
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The Dow, the S&P 500 and the Nasdaq registered weekly declines for the week ended May 18, but, the Russell 2000 index posted weekly gains. In fact, the small-cap index ended in the green for the third consecutive week, its longest weekly winning stretch since January. Moreover, the index touched its all-time high levels for the fourth straight trading day on May 21.
Stronger dollar weighed on large-cap stocks. However, the Russell 2000 gained as small-cap stocks have lesser international exposure and are thus protected from the adversities of a rising dollar. For investors with a high risk appetite and return expectations, funds focused on small-cap growth stocks are the best bet given the current market environment.
What Drove the Small-Cap Index Higher?
One of the major advantages that small caps hold over their large-cap peers is their strong domestic focus. As per data from S&P Dow Jones Indices, domestic revenue exposure for companies which make up the S&P SmallCap 600 index is 78.8%. This is significantly higher than the S&P 500 and the S&P MidCap 400, domestic exposure for which stand at 70.9% and 73.3%, respectively.
Small-cap stocks are clearly enjoying a good year. While the benchmark S&P 500 is up only 0.6% year to date, the Russell 2000 and the S&P Small Cap 600 indices have gained 4.9% and 6.3% over the same period. In the last 10 years, for every 1% or 100 basis points increase in the dollar, mid-cap and large-cap stocks witnessed gains of 0.82% and 0.71%, respectively. In contrast, small-cap stocks gained 0.95%, according to data from S&P Dow Jones.
The Russell 2000 Index performed better than its large- and mid-cap counterparts, making small-cap growth funds a strong investment. Though small-cap funds are believed to have a higher level of volatility compared with large- and mid-cap funds, they show greater growth potential and are expected to maintain this momentum in the coming months. Hence, risk-loving investors can pick these funds to gain following the recent gains in the Russell 2000 Index.
Buy These 5 Small-Cap Growth Mutual Funds
In this scenario, we have selected five mutual funds, which have significant exposure to small-cap growth stocks. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). These funds also have encouraging one-year and year-to-date (YTD) returns and minimum initial investment is within $5000. Also, each of these funds has a low expense ratio.
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.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why should one be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
TCM Small Cap Growth Fund (TCMSX - Free Report) invests a large chunk of its assets in companies, which are expected to have market capitalization similar to those listed on the Russell 2000 Index. TCMSX seeks appreciation of capital for the long run.
TCMSX carries an expense ratio of 0.95% compared with the category average of 1.24%. Moreover, TCMSXrequires a minimal initial investment of $2,500. The fund has one-year and YTD returns of 17.6% and 1.6%, respectively.
TCMSX has a Zacks Mutual Fund Rank #2. Further, Richard J. Johnson is one of the fund managers of TCMSXsince 2004.
T. Rowe Price QM US Small-Cap Growth Equity (PRDSX - Free Report) invests a huge part of its assets in securities of small-cap, growth-oriented companies. Though PRDSX primarily focuses on acquiring securities of domestic companies, it may also invest around 10% of its assets in securities of companies located in foreign countries.
PRDSX carries an expense ratio of 0.79% compared with the category average of 1.24%. Moreover, PRDSX requires a minimal initial investment of $2,500. The fund has one-year and YTD returns of 14.3% and 1.5%, respectively.
PRDSX has a Zacks Mutual Fund Rank #1. Further, Sudhir Nanda is the fund manager of PRDSX since 2006.
Northern Small Cap Core Fund (NSGRX - Free Report) seeks appreciation of capital over the long haul. NSGRX invests a huge portion of its assets in equity securities of small-cap companies with market-cap in the range of the Russell 2000 Index.
NSGRX carries an expense ratio of 0.67% compared with the category average of 1.16%. Moreover, NSGRX requires a minimal initial investment of $2,500. The fund has one-year and YTD returns of 9.9% and 0.4%, respectively.
NSGRX has a Zacks Mutual Fund Rank #1. Further, Robert H. Bergson is the fund manager of NSGRX since 2010.
Hartford Small Company HLS (HDMBX - Free Report) invests in common stocks of companies that have strong capital growth potential. HDMBX’s sub-adviser, Wellington Management Company, LLP, invests the bulk of its assets in common stocks of companies that fall within the range of both the Russell 2000 and S&P SmallCap 600 Indices.
HDMBX carries an expense ratio of 1.03% compared with the category average of 1.24%. Moreover, HDMBX requires a minimal initial investment of $0. The fund has one-year and YTD returns of 18.9% and 3.3%, respectively.
HDMBX has a Zacks Mutual Fund Rank #1. Further, Steven C. Angeli is one of the fund managers of HDMBX since 1999.
Goldman Sachs Small Cap Growth Insights Investor (GSTOX - Free Report) maintains a diversified portfolio by investing primarily in equity securities of companies whose market-cap is similar to those in the Russell 2000 Index. The fund may also invest in fixed income securities believed to be cash equivalents.
GSTOX carries an expense ratio of 0.96% compared with the category average of 1.24%. Moreover, GSTOX requires a minimal initial investment of $0. The fund has one-year and YTD returns of 16.3% and 3.8%, respectively.
GSTOX has a Zacks Mutual Fund Rank #2. Further, Dennis Walsh is the fund manager of GSTOX since 2013.
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Russell 2000 Hits Third Straight Record Close: 5 Fund Picks
The Dow, the S&P 500 and the Nasdaq registered weekly declines for the week ended May 18, but, the Russell 2000 index posted weekly gains. In fact, the small-cap index ended in the green for the third consecutive week, its longest weekly winning stretch since January. Moreover, the index touched its all-time high levels for the fourth straight trading day on May 21.
Stronger dollar weighed on large-cap stocks. However, the Russell 2000 gained as small-cap stocks have lesser international exposure and are thus protected from the adversities of a rising dollar. For investors with a high risk appetite and return expectations, funds focused on small-cap growth stocks are the best bet given the current market environment.
What Drove the Small-Cap Index Higher?
One of the major advantages that small caps hold over their large-cap peers is their strong domestic focus. As per data from S&P Dow Jones Indices, domestic revenue exposure for companies which make up the S&P SmallCap 600 index is 78.8%. This is significantly higher than the S&P 500 and the S&P MidCap 400, domestic exposure for which stand at 70.9% and 73.3%, respectively.
Small-cap stocks are clearly enjoying a good year. While the benchmark S&P 500 is up only 0.6% year to date, the Russell 2000 and the S&P Small Cap 600 indices have gained 4.9% and 6.3% over the same period. In the last 10 years, for every 1% or 100 basis points increase in the dollar, mid-cap and large-cap stocks witnessed gains of 0.82% and 0.71%, respectively. In contrast, small-cap stocks gained 0.95%, according to data from S&P Dow Jones.
The Russell 2000 Index performed better than its large- and mid-cap counterparts, making small-cap growth funds a strong investment. Though small-cap funds are believed to have a higher level of volatility compared with large- and mid-cap funds, they show greater growth potential and are expected to maintain this momentum in the coming months. Hence, risk-loving investors can pick these funds to gain following the recent gains in the Russell 2000 Index.
Buy These 5 Small-Cap Growth Mutual Funds
In this scenario, we have selected five mutual funds, which have significant exposure to small-cap growth stocks. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). These funds also have encouraging one-year and year-to-date (YTD) returns and minimum initial investment is within $5000. Also, each of these funds has a low expense ratio.
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.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why should one be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
TCM Small Cap Growth Fund (TCMSX - Free Report) invests a large chunk of its assets in companies, which are expected to have market capitalization similar to those listed on the Russell 2000 Index. TCMSX seeks appreciation of capital for the long run.
TCMSX carries an expense ratio of 0.95% compared with the category average of 1.24%. Moreover, TCMSXrequires a minimal initial investment of $2,500. The fund has one-year and YTD returns of 17.6% and 1.6%, respectively.
TCMSX has a Zacks Mutual Fund Rank #2. Further, Richard J. Johnson is one of the fund managers of TCMSXsince 2004.
T. Rowe Price QM US Small-Cap Growth Equity (PRDSX - Free Report) invests a huge part of its assets in securities of small-cap, growth-oriented companies. Though PRDSX primarily focuses on acquiring securities of domestic companies, it may also invest around 10% of its assets in securities of companies located in foreign countries.
PRDSX carries an expense ratio of 0.79% compared with the category average of 1.24%. Moreover, PRDSX requires a minimal initial investment of $2,500. The fund has one-year and YTD returns of 14.3% and 1.5%, respectively.
PRDSX has a Zacks Mutual Fund Rank #1. Further, Sudhir Nanda is the fund manager of PRDSX since 2006.
Northern Small Cap Core Fund (NSGRX - Free Report) seeks appreciation of capital over the long haul. NSGRX invests a huge portion of its assets in equity securities of small-cap companies with market-cap in the range of the Russell 2000 Index.
NSGRX carries an expense ratio of 0.67% compared with the category average of 1.16%. Moreover, NSGRX requires a minimal initial investment of $2,500. The fund has one-year and YTD returns of 9.9% and 0.4%, respectively.
NSGRX has a Zacks Mutual Fund Rank #1. Further, Robert H. Bergson is the fund manager of NSGRX since 2010.
Hartford Small Company HLS (HDMBX - Free Report) invests in common stocks of companies that have strong capital growth potential. HDMBX’s sub-adviser, Wellington Management Company, LLP, invests the bulk of its assets in common stocks of companies that fall within the range of both the Russell 2000 and S&P SmallCap 600 Indices.
HDMBX carries an expense ratio of 1.03% compared with the category average of 1.24%. Moreover, HDMBX requires a minimal initial investment of $0. The fund has one-year and YTD returns of 18.9% and 3.3%, respectively.
HDMBX has a Zacks Mutual Fund Rank #1. Further, Steven C. Angeli is one of the fund managers of HDMBX since 1999.
Goldman Sachs Small Cap Growth Insights Investor (GSTOX - Free Report) maintains a diversified portfolio by investing primarily in equity securities of companies whose market-cap is similar to those in the Russell 2000 Index. The fund may also invest in fixed income securities believed to be cash equivalents.
GSTOX carries an expense ratio of 0.96% compared with the category average of 1.24%. Moreover, GSTOX requires a minimal initial investment of $0. The fund has one-year and YTD returns of 16.3% and 3.8%, respectively.
GSTOX has a Zacks Mutual Fund Rank #2. Further, Dennis Walsh is the fund manager of GSTOX since 2013.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>