When capital appreciation over the long term takes precedence over dividend payouts, growth funds become a natural choice for investors. These funds focus on realizing an appreciable amount of capital growth by investing in stocks of firms whose value is projected to rise over the long term. However, a relatively higher tolerance to risk and the willingness to park funds for the longer term are necessary when investing in these securities. This is because they may experience relatively more fluctuations than other fund classes. Meanwhile, Small cap funds are a good choice for investors seeking diversification across different sectors and companies. Investors with a high risk appetite should invest in these funds. Small cap funds generally invest in companies having market cap lower than $2 billion. The companies, smaller in size, offer growth potential and their market capitalization may increase subsequently.
Below we will share with you 5 top rated small cap growth mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.
T. Rowe Price New Horizons Fund (MUTF:PRNHX) seeks capital appreciation over the long term. PRNHX maintains a diversified portfolio by investing in emerging growth companies having small market capitalizations. PRNHX invests in companies that are believed to above-average growth potential. The T. Rowe Price New Horizons fund has a three-year annualized return of 21.2%.
Henry M. Ellenbogen is the fund manager and has managed PRNHX since 2010.
BlackRock Small Cap Growth Equity Portfolio (MUTF:CSGEX) invests a major portion of its assets in domestic small cap companies. CSGEX defines small cap companies as those which are having market capitulation size within the range of the Russell 2000 Index. CSGEX may also consider IPOs for potential investment. The BlackRock Small Cap Growth Equity Investor A fund has a three-year annualized return of 20.4%.
As of April 2015, CSGEX held 373 issues with 2.07% of its assets invested in LogMeIn Inc.
Franklin Small Cap Growth Fund (MUTF:FSGRX) seeks long-term capital appreciation. FSGRX invests heavily in common stocks of small cap firms having market capitalization not more than $1.5 billion or similar to those listed in the Russell 2000 Index. FSGRX may allot a small portion of its assets in large cap companies and may invest significant portion of its assets in a particular sector. The Franklin Small Cap Growth A fund has a three-year annualized return of 20.8%.
FSGRX has an expense ratio of 1.20% as compared to category average of 1.35%.
Neuberger Berman Small Cap Growth Fund (MUTF:NBMIX) invests a lion's share of its assets in companies having market capitalizations similar to those included in the Russell 2000 Index. NBMIX invests in a diversified portfolio of growth stocks from a wide range of sectors. NBMIX may focus on some specific sectors that are believed to get benefited from market or economic trends. The Neuberger Berman Small Cap Growth Investor fund has a three-year annualized return of 18.6%.
David H. Burshtan is the fund manager and has managed NBMIX since 2003.
Laudus Small-Cap MarketMasters Fund (SWOSK) seeks capital growth over the long run. SWOSX invests a large chunk of its assets in companies having market cap size not exceeding $2.5 billion. However, SWOSX may consider companies with market cap between $2.5 billion and $5 billion for investment as long as fund's average weighted market cap size remains below $3 billion. The Laudus Small-Cap MarketMasters Investor fund has a three-year annualized return of 15.2%.
SWOSX has an expense ratio of 1.35% identical to the category average.
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