Despite a sluggish start to the year, recently released data has shown that the U.S. economy expanded in the first quarter. In its "second estimate," economic growth for the first quarter witnessed an upward revision also highlighted an increase in consumer spending and a rise in business investment. With the domestic economy witnessing stable expansion, growth mutual funds could be prudent investment options.
Q1 GDP Advanced in "Second Estimate"
In its second estimate, GDP increased to 1.2% from the previous estimate of 0.7%. It also beat analysts' estimate of 0.9% and was an improvement over Q1's gain of 0.8%. Moreover, corporate profits increased 3.7% year over year in the first three months of 2017, despite falling 1.9% from the fourth quarter of last year.
Additionally, after a temporary pullback, both consumer spending and business investment gained traction. Consumer spending, which accounts for a bulk of U.S. economic output, was revised upward from the preliminary reading of 0.3% to 0.6% in the second estimate. Also, business investment rose 11.9% in the first quarter, which is better than the previous estimate of 9.4%.
Why Choose Growth Mutual Funds?
With the U.S. economy registering steady growth in recent times, growth funds have become a natural choice for investors, who prefer capital appreciation over the long term to dividend payouts. These funds generally invest in the assets of those companies that carry an above-average growth potential.
Here, we have selected growth funds with varying market caps, a nice mix of which makes a portfolio profitable. Small-cap funds generally have a higher risk exposure but are good choices for investors seeking diversification across different sectors. Small-cap companies have lesser international exposure and are most likely to benefit from the recent economic expansion. Mid-cap funds are not highly susceptible to volatility in broader markets, thus being ideal investments. Large-cap funds are perfect investment options for those in the pursuit of high returns that come with lower risk than small-cap and mid-cap funds.
Buy These 6 Growth Mutual Funds
Following these improvements in the economy, investors may consider growth mutual funds. According to Morningstar, the large-cap, mid-cap, and small-cap growth mutual funds had one-year annualized return of 18.2%, 16.5%, and 20.2%, respectively. Here, we have selected two growth mutual funds from each of the three categories - large-cap, mid-cap, and small-cap - that have a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging year-to-date (YTD) and one-year annualized returns. They also have minimum initial investment within $5,000 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.
Large-Cap Growth Funds
Vanguard US Growth Investor (MUTF:VWUSX) invests primarily in securities of companies located in the U.S. VWUSX focuses on acquiring common stocks of companies having large-cap market capitalization. VWUSX considers companies with strong earnings growth prospects and favorable valuation for potential investment.
VWUSX has an annual expense ratio of 0.46%, lower than the category average of 1.07%. The fund has YTD and one-year annualized returns of 15.7% and 16.3%, respectively.
JPMorgan Intrepid Growth R5 (MUTF:JGIRX) invests the majority of its assets in equity securities of large- and mid-cap companies. JGIRX seeks capital growth over the long run. The fund generally invests in those securities that are expected to have strong momentum, high quality, and attractive valuations.
JGIRX has an annual expense ratio of 0.47%, lower than the category average of 1.07%. The fund has YTD and one-year annualized returns of 14.6% and 21.4%, respectively.
Mid-Cap Growth Funds
Commerce MidCap Growth (MUTF:CFAGX) seeks growth of capital for the long run. CFAGX invests the lion's share of its assets in common stocks of mid-cap companies, which are included in the Russell Midcap Growth Index.
CFAGX has an annual expense ratio of 0.87%, lower than the category average of 1.17%. The fund has YTD and one-year annualized returns of 10.5% and 15.4%, respectively.
Principal MidCap A (MUTF:PEMGX) invests a large part of its assets in equity securities of mid-cap companies, whose market cap falls within the range of the Russell Midcap Index. PEMGX seeks capital appreciation for the long run. The fund invests in both U.S. and non-U.S. companies.
PEMGX has an annual expense ratio of 0.99%, lower than the category average of 1.17%. The fund has YTD and one-year annualized returns of 12.6% and 18.9%, respectively.
Small-Cap Growth Funds
TCM Small Cap Growth (MUTF:TCMSX) invests a huge share of its assets in small-cap companies having market capitalization similar to those listed on the Russell 2000 Index. TCMSX seeks growth of capital for the long run.
TCMSX has an annual expense ratio of 0.95%, lower than the category average of 1.07%. The fund has YTD and one-year annualized returns of 9.9% and 27.3%, respectively.
Franklin Small Cap Growth Advisor (MUTF:FSSAX) seeks growth of capital for the long run. FSSAX invests mainly in common stocks of small-cap companies, whose market-cap is either similar to the highest range of the Russell 2000 Index or around $1.5 billion, whichever is higher at the time of purchase.
FSSAX has an annual expense ratio of 0.86%, lower than the category average of 1.07%. The fund has YTD and one-year annualized returns of 4.7% and 17.5%, respectively.