5 Funds To Buy On Second-Best Small Business Sentiment

In November, the small-cap business optimism index rose to its second-highest level since its inception 44 years ago. Small-business sentiment also hit its best settlement since 1983. Expectations of better business conditions in the near future and expansion in the business environment supported these gains. Out of the 10 key components of the index, eight registered an increase.

Additionally, optimism over Trump’s tax overhaul policies makes small-cap growth funds a favorable investment choice. Though small-cap funds are believed to have a higher level of volatility compared to their large and mid-cap counterparts, they show greater growth potential following strong business optimism and a weak tax environment.

Small Business Sentiment Index Hovers Near Record High

According to National Federation of Independent Business, the small-business optimism index increased 3.7 points to settle at 107.5 in November, its second-best level in 44 years. Out of the 10 major components in the index, only plans to make capital outlays and current job openings in small-cap companies decreased last month.

Meanwhile, the two key contributors of the index, expectation of improving economy and higher real sales prospect rose 16% and 13%, respectively. Additionally, better employment plans and an expanding business environment for small business firms soared 14% and 10%, respectively.

Per the index readings, majority of the NFIB members now expect the U.S. economy to register strong growth in the fourth quarter, which may rise as high as 4%. NFIB President Juanita Duggan said small business owners are now focused on Trump’s long-awaited tax reforms. Duggan added that 2018 might shape up as a great year for small business firms, provided the President and the Congress “follow through on tax reform.”

Trump’s Tax Reform in Focus

On Dec 2, U.S. Senate Republicans passed the tax Bill after they won the vote by 51 to 49. According to the Tax Cuts and Jobs Act, the corporate tax rate will be reduced to 20% from 35%, while companies will be allowed to pay a 5% tax on reinvested earnings and 10% tax on deferred cash earnings.

With Trump’s much-awaited Republican tax Bill being approved by the Senate, a tax cut seems evident in the coming months. Lower tax rate prospects are expected to have a positive impact on funds, which have significant exposure to small-cap stocks.

Buy These 5 Small-Cap Mutual Funds

In the current scenario, investing in small-cap mutual funds with stable growth potential could be wise. The small-cap growth, value and blend mutual funds posted year-to-date (YTD) returns of 19.8%, 7.4% and 11.1%, respectively.

In this context, we have highlighted five small-cap mutual funds that have a Zacks Mutual Fund Rank #1 (Strong Buy) and have impressive YTD and one-year annualized returns. Moreover, these funds have a low expense ratio and their minimum initial investment is within $5000.

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.

TCM Small Cap Growth Original post

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Written By: Zacks Investment Research