Investors with a high risk appetite as well as an interest in growth and value investing may choose small-cap blend mutual funds to boost their portfolio. While blend funds, also known as "hybrid funds," aim for value appreciation by capital gains, small-cap funds are expected to have higher growth prospects than their large and medium counterparts. Blend funds provide significant exposure to both growth and value stocks and owe their origin to a graphical representation of a fund's equity style box.
Funds investing the majority of their assets in securities of companies with market capitalization lower than $2 billion are generally considered small-cap mutual funds. Though funds investing in small-cap stocks are believed to have more exposure to market volatility than large or medium ones, they are also expected to provide diversification across sectors and companies. Moreover, small-cap companies are believed to be less affected by a global downturn, thanks to less international exposure.
Below, we will share with you four buy-rated small-cap blend mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect these mutual funds to outperform their peers in the future.
USAA Small Cap Stock Fund (MUTF:USCAX) invests a major portion of its assets in stocks of small-cap companies. USCAX seeks growth of capital for the long run. USCAX invests not only in domestic companies, but also in foreign companies. The USAA Small Cap Stock fund has a three-year annualized return of 5.1%.
USCAX has an expense ratio of 1.15% as compared to the category average of 1.26%.
TIAA-CREF Small-Cap Equity Fund (MUTF:TCSEX) seeks favorable return over the long term. TCSEX invests heavily in domestic small-cap companies having market capitalizations identical to those included in the Russell 2000 Index. TCSEX primarily invests in small-sized companies across different sectors. The TIAA-CREF Small-Cap Equity fund has a three-year annualized return of 7%.
As of May 2016, TCSEX held 309 issues, with 0.78% of its assets invested in PrivateBancorp, Inc. (NASDAQ:PVTB).
Fidelity Small Cap Stock Fund (MUTF:FSLCX) invests a lion's share of its assets in companies having market capitalization within the range of either the Russell 2000 Index or the S&P Small Cap 600 Index. FSLCX uses a "blend" strategy to invest in common stocks of companies throughout the globe. Factors including financial strength and economic condition are considered before investing in a company. The Fidelity Small Cap Stock fund has a three-year annualized return of 8.3%.
Lionel Harris is the fund manager and has managed FSLCX since 2011.
Sentinel Small Company Fund A (MUTF:SAGWX) seeks appreciation of capital. SAGWX invests a large chunk of its assets in securities of companies whose market cap is less than $4 billion. SAGWX primarily invests in small-cap companies, which are expected to have strong growth potential, high quality and are well valued. The Sentinel Small Company A fund has a three-year annualized return of 6.8%.
SAGWX has an expense ratio of 1.25% as compared to the category average of 1.41%.