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For investors interest in small-cap stock investor or putting a portion of their investment portfolio into the small cap sector of the market, small-cap designated mutual funds may not provide a true emphasis on small cap stocks. The definition of small cap varies from source to source, but one could be safe saying small companies are those with a market capitalization less than $1 billion. Possibly the cutoff could be as high as $2 billion.

Yet, some of the small cap funds own stocks with significant higher market values. A list of top holdings shows stocks with market caps of $5 billion, $7 billion and even $11 billion! This tells you as an investor two things: One, small cap mutual funds will probably own more mid-cap stocks because they can buy these companies in enough size the be a meaningful holding in a fund. Second, investors can research and pick individual, real small cap stocks to outperform the so-called small cap funds.

Darling International (NYSE:DAR) provides waste - primarily cooking fats - recycling for the restaurant and food industries. The 2010 acquisition of Griffin Resources almost pushed this company out of small cap status. The current market cap is $1.8 billion. The purchase will fuel future growth and a joint venture with Valero Energy (NYSE:VLO) to produces biodiesel from recycled fat collections makes this stock a long term play on renewable energy with a current base of profitable business.

Twin Disc, Inc. (NASDAQ:TWIN) produces marine transmission units, selling products for the pleasure, commercial and military boating markets. This $380 million market cap company is forecast to see revenue increase by 20 percent in 2012 and net income to double compared to the 2011 results. Shares are trading at less than 10 times expected 2012 earnings.

Kaydon Corp (NYSE:KDN) is a $1.1 billion market cap manufacturer of specialty components such as bearings, filters and filter housings, rings, seals and deceleration control products. Made in America, best in the world industrial products. The stock is a major holding of the Perkins Small Cap Value mutual fund and a favorite of mutual fund manager Chuck Royce.

Schweitzer Mauduit International Inc (NYSE:SWM) produces specialty paper products with 90 percent of the company's sales going to the tobacco industry. The SWM share price has increased by 500 percent since 2009, yet the stock trades at about 10 times expected 2012 operating earnings. The stock is a major holding of the Fidelity Small Cap Stock Fund and the American Funds SMALLCAP World Fund. Schweitzer Mauduit International has a market cap of $1.15 billion.

CNO Financial (NYSE:CNO) is a life, accident and health insurance holding company with a $1.7 billion market capitalization. The low interest rate environment has been hard on life insurance companies, yet CNO Financial has maintained a steady level of profits. The most attractive investment feature of CNO is a $7.00 share price and a book value of over $20 per share. When interest rates start to come off the current historic lows this stock could be a quick double.

Source: 5 Small Cap Stocks Held By Top Small Cap Mutual Funds