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3 Solid Growth Funds to Buy as Leading Indicators Rebound

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The Conference Board’s Leading Economic Index improved for the first time in the past five months in February. This points to stepped-up economic activity. Much of the increase can be attributed to rising stock prices, low interest rates and better access to credit in the country.

The indicator, which tracks 10 metrics of the U.S. economy, reveals common turning point patterns in economic data as well as peaks and troughs in business cycles. Since the latest data shows improving economic conditions domestically, investing in growth mutual funds seems prudent at this point.

US Economy Expands First Time Since September

After a rather slow start to 2019, the U.S. economy seems to be gathering steam of late. This is evident from the recent survey of economic conditions in the country. The Conference Board reported on Mar 21 that its Leading Economic Index (LEI) increased 0.2% in February, marking growth for the first time since September. This is a clear sign that growth in the U.S. economy is set to pick up in the days to come.

High stock prices and low interest rates more than offset weaker job creation and higher than normal level of layoffs. The director of economic research at the board, Ataman Ozyildirim said, “February’s improvement was driven by accommodative financial conditions and a rebound in stock prices, which more than offset weaknesses in the labor market components.”

Meanwhile, six of the 10 components of the index reported expansion. Further, a steep decline in the cost of borrowing after Fed’s decision to hold interest rates steady would support economic growth in the near term. Economists believe that despite low growth forecasts by the central bank, the U.S. economy is on track for the longest economic growth in history this summer.

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 assets of companies that have above-average growth potential.

Here, we have selected growth funds with varying market caps, a nice mix of which makes a profitable portfolio. 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 boast better growth potential than their large-cap counterparts, making them ideal investments.

3 Best Mutual Funds to Buy Now

Given the positives, we have highlighted three growth mutual funds poised to gain significantly from improving economic conditions. 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 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).

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.

This Sector- Small Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

GSTOX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.98%, which is below the category average of 1.20%. The fund has three and five-year returns of 17.9% and 9.2%, respectively.

Vanguard Explorer Investor VEXPX normally invests assets in common stocks of small and mid-cap companies, which are expected to have strong 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. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VEXPX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.46%, which is below the category average of 1.20%. The fund has three and five-year returns of 20.3% and 9.2%, respectively.

JPMorgan Dynamic Small Cap Growth A VSCOX seeks appreciation of capital for the long run. VSCOX invests a bulk of its assets in equity securities of small-cap companies that either have market-cap similar to those included in the Russell 2000 Growth index or have market-cap lower than $4 billion.

This Sector- Small Cap Growth product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VSCOX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.28%, which is below the category average of 1.29%. The fund has three and five-year returns of 27.7% and 10.2%, respectively.

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