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Russell 2000 Hits Record High: Buy 4 Small-Cap Funds

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On Jun 20, the index tracking small-cap companies in the United States, hit an all-time high of 1,708 and closed at 1,706.99 — also its record close. This marks the third time that the index closed at record levels in over a month’s time. Such developments point toward the resilience of small-cap companies to geopolitical fluctuations.

Small-cap stocks are, mostly, immune to any external shocks. This is evident from the fact that small-caps have significantly outperformed their larger counterparts so far this year.  

Russell 2000 Index Hits Fresh Record

The small-cap index gained 0.8% or 13.54 points in a single day. This was the third time that the Russell 2000 closed at an all-time high within a span of five weeks. The first time it closed at record levels was on May 16, at 1,616.37. Following this, the index notched up a record close for the second time on Jun 4, to settle at 1,653.37.

Over the last three months, the index has surged more than 8.1%. This is significantly higher than its large-cap counterparts, the Dow 30, S&P 500 and Nasdaq Composite, which gained 0.1%, 2% and 5.9%, respectively.

Why Small-Cap Growth Funds?

Small-cap growth funds are natural choices for investors with a high-risk appetite when capital appreciation over the long term takes precedence over dividend payouts. These funds focus on realizing an appreciable amount of capital growth by investing in stocks that are projected to rise in value over the long term.

Meanwhile, small-cap funds are good choices for investors seeking diversification across different sectors and companies. Small-cap funds generally invest in companies having market cap lower than $2 billion. The companies, smaller in size, offer growth potential and their market capitalization may increase subsequently. Also, due to their less international exposure, small-cap funds offer higher protection than their large- and mid-cap counterparts against any global downturn.

4 Best Choices

Given such circumstances, we have highlighted four small-cap growth mutual funds that are poised to gain. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the 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.

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 one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Federated MDT Small Cap Growth A (QASGX - Free Report) seeks capital growth for the long run. QASGX invests mainly in the common stocks of domestic small-cap companies. The fund attains its investment strategy by investing in those companies that are listed on the Russell 2000 Growth Index.

This Sector – Small Cap Growth product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 16.7% and 16.2%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

QASGX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.15%, which is below the category average of 1.23%.

Hartford Small Company HLS (HDMBX - Free Report) seeks appreciation of capital. The fund invests in common stocks of companies that have strong capital growth potential. HDMBX’s sub-adviser, Wellington Management Company, LLP, invests the lion’s share of its assets in common stocks of companies that fall within the range of both the Russell 2000 and S&P SmallCap 600 Indices.

This Sector – Small Cap Growth product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 7.8% and 11.3%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

HDMBXhas a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.03%, which is below the category average of 1.23%.

MassMutual Select Small Cap Growth Equity R5 (MSGSX - Free Report) invests a large chunk of its assets in equity securities of companies, whose market cap is similar to those included in the S&P SmallCap 600 Index or the Russell 2000 Index. The fund may also invest around one-fifth of its assets in foreign companies, including those engaged in emerging markets.

This Sector – Small Cap Growth product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 10.8% and 13.5%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

MSGSXhas a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.96%, which is below the category average of 1.23%.

Meridian Growth Legacy (MERDX - Free Report) invests primarily in small- and mid-cap companies, which are expected to provide above-average growth potentials in earnings and revenues. The fund may also invest around one-fourth of its assets in foreign companies, including those involved in emerging markets. 

This Sector – Small Cap Growth product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 8.6% and 10.7%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

MERDXhas a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.87%, which is below the category average of 1.23%.

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