All the three key U.S. indexes registered their third straight weekly rise last week, following fresh hints of additional stimulus measures by Bank of England (BOE) and Bank of Japan (BOJ). Also, the two largest domestic banks, JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corporation (NYSE:BAC) posted better-than-expected earnings results, which had a positive impact on the benchmarks.
Moreover, recent economic data including the June job data and retail sales report were upbeat. The Dow increased 2% for the week while both the S&P 500 and the Nasdaq posted weekly gains of 1.5%.
Following this rally, addition of mid-cap growth mutual funds to one's portfolio might be one of the most suitable investment options. Investors may opt to buy mid-cap growth funds as these normally offer better returns than large-cap funds and have comparatively lower volatility than their small-cap counterparts. But before we delve deeper into the funds, let's take a detailed look into what drove the upside.
BOE and BOJ Hint at Easing Monetary Policies
Bank of England (BOE) surprised the markets by keeping its rate unchanged at 0.5% on July 14. However, BOE hinted at introducing fresh economic stimulus measures next month. In a statement, BOE said that most of the members of its Monetary Policy Committee "expect monetary policy to be loosened in August."
Additionally, following his party's victory in Japan's upper house election on July 10, Prime Minister Shinzo Abe is expected to come up with additional economic stimulus measures. Abe asked his economy minister Nobuteru Ishihara to provide details of economic stimulus measures by the end of this month to improve the country's economy.
Major Banks Post Favorable Earnings Reports
JPMorgan Chase reported second quarter earnings of $1.55 per share, which surpassed the Zacks Consensus Estimate of $1.43. Managed net revenue of $25.2 billion in the quarter also beat the Zacks Consensus Estimate of $24.06 billion.
Bank of America posted second quarter earnings of 36 cents per share, which beat the Zacks Consensus Estimate of 34 cents. However, net revenues of $20.4 billion were marginally below the Zacks Consensus Estimate of $20.5 billion.
Economic Data Shine
June's encouraging job data and strong retail sales and industrial output data also gave a boost to investor sentiment. According to the Bureau of Labor Statistics (BLS), the U.S. economy created a total of 287,000 jobs in June, significantly higher than May's downwardly revised job number of only 11,000. Further, the Institute for Supply Management reported that ISM Services Index and Manufacturing Index came in upbeat.
Per the Commerce Department, sales at retail stores and restaurants advanced 0.6% in June from the prior month to a seasonally adjusted $456.98 billion. Household spending was broad-based, with sales excluding autos and gasoline advancing 0.7%. Sales were mostly led by a jump of 3.9% in building and supply stores, its largest one-month increase since Apr 2010.
Moreover, industrial production increased 0.6% last month following an upwardly revised 0.3% decline in May. Industrial output expanded at the fastest monthly rate in 11 months. Capacity utilization also rose to 75.4% in June from an unrevised 74.9% in May.
Buy These 4 Mid-Cap Growth Mutual Funds
Following these improvements in the markets, investors may consider mid-cap growth mutual funds. Growth 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. Also, mid-cap funds tend to have lesser risk unlike small-cap funds and are expected to provide better returns than their large-cap counterparts.
We have selected four mid-cap growth mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging year-to-date, three-year and five-year annualized returns. They also have minimum initial investment within $5000 and low expense ratios.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
The Voya MidCap Opportunities Portfolio S (MUTF:ISMOX) seeks long-term capital growth. ISMOX invests a large chunk of its assets in stocks of companies, which comes within the range of the Russell Midcap Growth Index. The Voya MidCap Opportunities Portfolio S has year-to-date, three-year and five-year annualized returns of 6.9%, 8.6% and 9.8%, respectively. ISMOX has an expense ratio of 1.06% as compared to the category average of 1.30%.
The VALIC Company II Mid Cap Growth Fund (MUTF:VAMGX) invests more than 80% of its assets in securities of mid-cap companies. VAMGX seeks capital appreciation for the long run. The VALIC Company II Mid Cap Growth has year-to-date, three-year and five-year annualized returns of 4.7%, 5.7% and 5.7%, respectively. VAMGX has an expense ratio of 0.84% as compared to the category average of 1.30%.
The Principal MidCap Fund (MUTF:PMBJX) seeks growth of capital for the long run. PMBJX invests a major portion of its assets in securities of companies within the range of the Russell Midcap Index. The Principal MidCap J has year-to-date, three-year and five-year annualized returns of 7.5%, 11% and 13.3%, respectively. PMBJX has an expense ratio of 0.88% as compared to the category average of 1.30%.
The T. Rowe Price Mid-Cap Growth Fund (MUTF:RRMGX) invests the lion's share of its assets in a diversified portfolio comprising securities of mid-cap companies, whose earnings are expected to be better than the industry average. RRMGX invests mainly in companies from the S&P MidCap 400 Index or the Russell Midcap Growth Index. The T. Rowe Price Mid-Cap Growth R has year-to-date, three-year and five-year annualized returns of 4.5%, 12.1% and 12.3%, respectively. RRMGX has an expense ratio of 1.28% as compared to the category average of 1.30%.