Small cap mutual funds are perfect if you’re an investor with a reasonable appetite for risk and a willingness to take short term positions. Furthermore, smaller firms typically reinvest a significant amount of their profits back into the business each year.
However, small cap funds are typically more volatile than their large cap brothers. This is because there’s much less stock available to trade at any one time, so when the market surges small cap stocks typically become sparse and the price skyrockets.
But that doesn’t mean you should discount them altogether. Investors looking for greater diversification and a medium risk strategy should seriously consider adding small cap mutual funds to their portfolio.
Small cap mutual funds are an easier way to invest in small cap stocks, because you only have to monitor the performance of each fund rather than each individual stock. Carrying out research on small cap stocks is no mean feat and most private investors probably don’t have the time.
But which funds should you consider? Fortunately Zacks Research has already done the ground work for you. Below we’ll share with you the 5 top rated small cap mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) rating, meaning they’re a strong buy and should be in your portfolio.
Top 5 Small Cap Mutual Funds
1. Fidelity Small Cap Stock (FSLCX) seeks capital appreciation over the long term. The fund invests the majority of its assets in common stocks of small cap firms. Companies invested in must have market capitalizations within the range of the Russell 2000 Index or the S&P Small Cap 600 Index. The FSLCX small-cap mutual fund has a three year annualized return of 2.55%.
The FSLCX small-cap mutual fund has a minimum initial investment of $2,500 and an expense ratio of 1.12% compared to a category average of 1.33%.
2. Wells Fargo Intrinsic Small Cap Value (SCOVX) invests heavily in equity securities of small-cap companies. These firms must have market capitalizations within the range of the Russell 2500 Index. The funds may utilize synthetic instruments to lower risk or provide higher returns. The SCOVX small-cap mutual fund returned 19.65% over the last one year period.
3. Buffalo Small Cap (BUFSX) seeks long term capital appreciation. The fund invests a large proportion of its assets in common, preferred stocks and related convertible securities of domestic small cap companies. The BUFSX small-cap mutual fund has a five year annualized return of 2.64%.
The BUFSX small cap mutual fund has a minimum initial investment of $2,500 and an expense ratio of 1.01% compared to a category average of 1.52%.
4. Federated MDT Small Cap Growth A (QASGX) invests heavily in domestic small cap companies. It focuses on acquiring common stock and invests in firms which are identical to those which are part of the Russell 2000 growth index. This fund returned 36.28% over the last one year period.
5. Turner Small Cap Growth (TSCEX) seeks capital growth. The fund invests the majority of its assets in equity securities of domestic small-cap companies. The fund focuses on acquiring common stocks and investing in companies which have widely diversified operations. It tries to match sector concentrations as represented by the 200 Growth index. It’s a no-load fund.
The TSCEX small cap mutual fund has a ten year annualized return of 5.17%.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at www.zacks.com.
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