Top 5 Small Cap Mutual Funds (March 2011)

Investors aiming to reap substantial profits in the short run often turn to small cap funds. Though comparatively riskier than other fund categories, these funds have the ability to deliver appreciably higher returns due to two principal reasons. Firstly, they generate high sales volumes in a rising market, leading to a spike in their prices. In addition, research has shown that smaller firms reinvest their profits back into their business. This often reassures shareholders of better performance over the long term.

Below we will share with you 5 top rated small-cap mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.

Invesco Small Cap Equity A (SMEAX) seeks long-term capital appreciation by investing in small-cap companies. The majority of the fund’s assets are invested in small companies within the market cap of the Russell 2000 index. It focuses on purchasing equity securities as well as convertible securities. The fund returned 34.67% over the last one year period.

The small-cap mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.52% compared to a category average of 1.41%.

Turner Small Cap Growth (TSCEX) invests the majority of its assets in equity securities of domestic small-cap companies. It 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 is a no-load fund.

This small-cap mutual fund has a three year annualized return of 5.87%.

Federated MDT Small Cap Growth A (QASGX) seeks long-term capital growth. The fund invests a large share of its assets 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 small-cap mutual fund returned 38.57% over the last one year period.

As of December 2010, this small-cap mutual fund held 159 issues, with 1.98% of its total assets invested in Sothebys A.

AllianceBernstein Small Cap Growth A (QUASX) invests heavily in equity securities of small-cap companies with market capitalizations of less than $10 million. At any given time the fund invests in between 95 to 125 companies. This small-cap mutual fund has a five year annualized return of 4.54%.

The fund manager is Bruce Aronow and he has managed this small-cap fund since 2000.

Needham Small Cap Growth (NESGX) seeks capital growth with lowest possible tax implications. The majority of the fund’s assets is invested in domestic equity securities of companies with market capitalizations of less than $2 billion or is within the range of the Russell 2000 index, if greater. The fund returned 43.81% over the last one year period.

The small-cap mutual fund has a minimum initial investment of $2,000 and an expense ratio of 2.50% compared to a category average of 1.55%.

To view the Zacks Rank and past performance of all small-cap mutual funds, then click here.

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