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3 Small-Cap Growth Funds for Escalating Trade War Tensions

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Ever since President Trump’s imposition of tariffs on steel and aluminum imports from China, equity markets at large have suffered. There have been a number of meetings between trade representatives from both countries, but all in vain. Not to forget, Trump has already threatened to slap tariffs on European cars entering the United States.

Thus, escalating trade tensions have had negative ramifications for different industries within the United States. Under such circumstances, investing in small-cap mutual funds would prove beneficial. Small-cap stocks are, mostly, immune to any international disputes. This is evident from the fact that small caps have significantly outperformed their larger counterparts so far this year.

Trump’s Efforts to Keep China at Bay Might Backfire

Trump has been embroiled in a trade conflict with China, barring several Chinese companies from investing in U.S. technology firms. The Treasury Department is putting together regulations that would restrict firms having at least 25% Chinese ownership from acquiring companies involved in what the Trump administration calls “industrially significant technology.”

Such policies would have negative ramifications for industries like healthcare, biotech and pharmaceutical that are tech-heavy and need to acquire industrially efficient technologies for growth and sustenance.

China has not included any medical products in the retaliatory tariffs that it imposed on the United States and is not likely to do so in the future as well. However, if such a scenario occurs, it would not be too good for the healthcare industry in general. As a norm, China refrains from using copies of drugs from American biotech companies. Experts fear that if China gets down to violating patent rights due to the escalation of trade war, it might start copying drugs from companies having significant exposure to it.

Retaliatory Tariffs on Auto Imports from EU

After the European Union (EU) announced that from Jun 22, import tariffs of more than $3.2 billion will be levied on a variety of American products, Trump retaliated with auto tariffs on imports from the region. On Jun 22, the American President threatened to levy a tariff of 20% on cars and other automobiles imported from EU countries.

With the President giving warnings of raising import tariffs on foreign-made cars, the Alliance of Automobile Manufacturers, a trade group of mostly U.S. automobile manufacturers, shared its concerns. Auto Alliance warned that such high auto tariffs may eventually raise production costs, reduce car demand and result in high job loss. (Read More)

3 Best Choices

Given such circumstances, we have highlighted three small-cap growth mutual funds that are poised to gain. These funds also carry a Zacks Mutual Fund Rank #1 (Strong 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 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.

HDMBX has 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.

MSGSX has an annual expense ratio of 0.96%, which is below the category average of 1.23%.

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