The U.S. economy expanded at a better pace in the second quarter than initially expected, posting the best quarterly growth in spring in the last four years, as reported by the Department of Commerce in its second estimate. The report highlighted higher business investment and government spending as well as an uptick in software investment.

Given this performance, it is likely that the U.S. economy will register steady growth in the coming quarters. Under conditions where the domestic economy remains robust and burgeoning, investing in growth mutual funds seem judicious.

Q2 GDP Advanced in Second Estimate

According to the Department of Commerce’s second estimate, U.S. GDP increased at a 4.2% annualized pace in the second quarter, reflecting an upward revision from 4.1% initially thought of. This is the fastest pace of growth experienced since the 4.9% pace registered in the third quarter of 2014. Such developments also indicate that the economy is on track to achieve annual growth of 3%, as targeted by Trump. Additionally, for the first half of 2018, the U.S. economy expanded at 3.2%.

Strength in software investment and a reduction in import bill propelled economic growth in the second quarter. This offset a minor downward revision to consumer spending. Business investments were healthy, contributing significantly to overall economic growth. Companies increased investments in software and equipment, which were revised up to 0.23% growth from 0.12% earlier.

Finally, on Aug 28, the Conference Board reported a surge in consumer confidence among Americans for the month of August. The index rose to 133.4 in August, marking an uptick from 127.9 in July. The index scaled its highest level since October 2000, surpassing 130 in February, which was also its post-recession high.

Why Choose Growth Mutual Funds?

With the U.S. economy registering strong 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.

3 Best Fund Choices

We have, thus, selected three growth mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. 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).

Vanguard Explorer Investor (VEXPX Quick QuoteVEXPX - Free Report)  normally invests its assets in common stocks of small and mid-cap companies, which are expected to have strong growth prospects. The fund generally offers very little or no dividend income.

This Sector –Small Cap Growth product has a history of positive total returns for over 10 years. Specifically, the fund has returned 11% over the three-year and 11.4% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

VEXPX carries a Zacks Mutual Fund Rank #1. The fund has an annual expense ratio of 0.43%, which is below the category average of 1.23%.

Bridgeway Small-Cap Growth Fund  maintains a diversified portfolio by investing a large share of its assets in small-cap companies, having impressive growth prospects. BRSGX invests in companies that are listed on the NYSE, NYSE MKT and NASDAQ.

This Sector –Small Cap Growth product has a history of positive total returns for over 10 years. Specifically, the fund has returned 12.3% over the three-year and 13% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

BRSGXcarries a Zacks Mutual Fund Rank #1. The fund has an annual expense ratio of 0.94%, which is below the category average of 1.23%.

Fidelity Small Cap Growth (FCPGX Quick QuoteFCPGX - Free Report)  invests the majority of its assets in equity securities of small-cap companies. The fund invests both in domestic and foreign companies, which Fidelity Management & Research Company (FMR) perceives as having significant growth prospects. FCPGX invests in both U.S. and non-U.S. companies.

This Sector –Small Cap Growth product has a history of positive total returns for over 10 years. Specifically, the fund has returned 15% over the three-year and 15.7% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FCPGX carries a Zacks Mutual Fund Rank #2. The fund has an annual expense ratio of 1.08%, which is below the category average of 1.23%.

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