Russell 2000 Hits Third Straight Record Close: 5 Fund Picks
Zacks Investment Research | May 21, 2018 10:59PM ET
The Dow, the S&P 500 and the Nasdaq registered weekly declines for the week ended May 18, but, the Russell 2000 index posted weekly gains. In fact, the small-cap index ended in the green for the third consecutive week, its longest weekly winning stretch since January. Moreover, the index touched its all-time high levels for the fourth straight trading day on May 21.
Stronger dollar weighed on large-cap stocks. However, the Russell 2000 gained as small-cap stocks have lesser international exposure and are thus protected from the adversities of a rising dollar. For investors with a high risk appetite and return expectations, funds focused on small-cap growth stocks are the best bet given the current market environment.
What Drove the Small-Cap Index Higher?
One of the major advantages that small caps hold over their large-cap peers is their strong domestic focus. As per data from S&P Dow Jones Indices, domestic revenue exposure for companies which make up the S&P SmallCap 600 index is 78.8%. This is significantly higher than the S&P 500 and the S&P MidCap 400, domestic exposure for which stand at 70.9% and 73.3%, respectively.
Small-cap stocks are clearly enjoying a good year. While the benchmark S&P 500 is up only 0.6% year to date, the Russell 2000 and the S&P Small Cap 600 indices have gained 4.9% and 6.3% over the same period. In the last 10 years, for every 1% or 100 basis points increase in the dollar, mid-cap and large-cap stocks witnessed gains of 0.82% and 0.71%, respectively. In contrast, small-cap stocks gained 0.95%, according to data from S&P Dow Jones.
The Russell 2000 Index performed better than its large- and mid-cap counterparts, making small-cap growth funds a strong investment. Though small-cap funds are believed to have a higher level of volatility compared with large- and mid-cap funds, they show greater growth potential and are expected to maintain this momentum in the coming months. Hence, risk-loving investors can pick these funds to gain following the recent gains in the Russell 2000 Index.
Buy These 5 Small-Cap Growth Mutual Funds
In this scenario, we have selected five mutual funds, which have significant exposure to small-cap growth stocks. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). These funds also have encouraging one-year and year-to-date (YTD) returns and minimum initial investment is within $5000. Also, each of these funds has a low expense ratio.
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.
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The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why should one be parking money in mutual funds (read more: Original post
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