Top 5 Small Cap Mutual Funds

In a tough small cap environment, these guys are getting it done

NYSE traders reacting to falling stock prices in August. (Photo: AP) NYSE traders reacting to falling stock prices in August. (Photo: AP)

Market volatility has been especially hard on small cap managers of late, but “Investing 101” dictates that what goes down must come up, and the steeper and deeper in, often (but not always) means the steeper and higher out.

On Wednesday, Zacks Investment Research released its list of the top five small cap funds. Yes, their smaller market cap buffer translates to higher risk, but that also means higher return potential (see aforementioned “Investing 101”).

“These funds have the ability to deliver appreciably higher returns due to two primary reasons,” Zack’s writes in its analysis. “Firstly, they generate high volumes of sales in a booming market, leading to a rise in prices. In addition, research has shown that smaller firms reinvest their profits back into their business. This reassures shareholders of better performance over the long term.”

Each fund listed in the following pages has earned a Zacks #1 Rank (Strong Buy).

Steve SalopekING Small Company A (NASDAQ: AESAX)—This fund seeks capital appreciation and invests the majority of its assets in common stocks of small cap firms, according to Zacks.

“It may also lend out a maximum of a third of the securities in its portfolio on a long or short term basis. This small-cap mutual fund has a 10-year annualized return of 5.23 %. The small-cap mutual fund has an expense ratio of 1.47% compared to a category average of 1.38%.”

Steve Salopek is portfolio manager and head of Small Cap.

Robert McDougallNuveen Small Cap Growth Opportunities A (FRMPX)—This fund invests heavily in small-cap companies. According to the report, “These firms must have market capitalizations lower than $3 billion. Not more than 25% of its assets are utilized to purchase foreign equity securities. This small-cap mutual fund has a three-year annualized return of 4.75%.”

The fund manager is Robert S. McDougall and he has managed this small-cap mutual fund since 2004.

Andy BaumbuschCambiar Small Cap (NASDAQ:CAMSX)Cambiar Small Cap seeks capital growth over the long term. The fund invests a large proportion of its assets in small-cap companies with a market capitalization that must be lower than $3.5 billion or within the range of the Russell 2000 Index, whichever is greater. The small-cap mutual fund has a five-year annualized return of 1.49%.

The small-cap mutual fund has an expense ratio of 1.25% compared to a category average of 1.38%.

Portfolio manager Andy Baumbusch joined Cambiar in 2004. He oversees the day-to-day management of the Cambiar Small Cap Value strategy with Jeff Susman.

Chris RetzlerNeedham Small Cap Growth (NASDAQ: NESGX)—Needham seeks capital growth with lowest possible tax implications, according to Zacks.

“The majority of the fund’s assets is invested in domestic equity securities of companies with market capitalizations of less than $2 billion or is within the range of the Russell 2000 index, if greater. The small-cap mutual fund has a three-year annualized return of 6.87%.”

The fund manager is Chris Retzler.

As of August 2011, this small-cap mutual fund held 75 issues, with 2.40% of its total assets invested in Plantronics.

Eric HarthunPutnam Small Cap Value A (NASDAQ:PSLAX)This fund primarily purchases common stocks of domestic small cap companies. Zacks says it focuses on investing in undervalued companies, “concentrating on small firms whose market capitalizations are within the range of the Russell 2000 Value Index. The small-cap mutual fund has a 10-year annualized return of 4.96%.”

The fund manager is Eric N. Harthun and he has managed this small-cap mutual fund since 2008.

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