Top 5 Small Cap Mutual Funds (March 2011)

All equity mutual funds are inherently risky in nature, since they are party to the highs and lows of the equity markets. Yet, some of them come with a greater slice of risk than others and small-cap funds are good examples. These funds invest in equity shares of smaller companies and hope to reap dividends when these firms realize their full potential. Such companies continuously reinvest their profits in search of higher growth but have low liquidity and unproven business models. This also means that they provide higher returns and such funds make good additions to a well diversified portfolio.

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.

Putnam Small Cap Growth A (PNSAX) seeks long-term capital appreciation by investing in small-cap companies. The fund focuses on acquiring common stocks of domestic companies with an emphasis on growth stocks. This small-cap mutual fund has a ten year annualized return of 4.04%.

The small-cap mutual fund has a minimum initial investment of $500 and an expense ratio of 1.39% compared to a category average of 1.54%.

Federated MDT Small Cap Growth A (QASGX) 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 42.48% 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.

Fidelity Series Small Cap Opportunities Fund (FSOPX) seeks capital growth. The majority of the fund’s assets are invested in small-cap companies. It seeks to acquire common stocks, both domestic and foreign, which may be growth or value stocks. This small-cap mutual fund has a three year annualized return of 12.56%.

Richard Thompson is the fund manager has managed this small-cap mutual fund since 2009.

Schwab Small-Cap Equity (SWSCX) invests at least 80% of its assets in small-cap companies. It primarily invests in stocks of companies which are part of the Russell 200 index or have market capitalizations not exceeding the $2.5 billion mark. This small-cap mutual fund returned 33.92% over the last one year period.

The small-cap mutual fund has a minimum initial investment of $100 and an expense ratio of 1.12% compared to a category average of 1.39%.

Pioneer Oak Ridge Small Cap Growth A (ORIGX) seeks long-term capital growth. It invests at least 80% of its assets in small-cap companies. It primarily invests in equity securities such as common stocks and convertible securities. This small-cap mutual fund has a five year annualized return of 6.47%.

David M. Klaskin is the fund manager has managed this small-cap mutual fund since 1994.

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

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