News and analysis from Standard & Poor’s MarketScope Advisor
Love ‘em or hate ‘em, there’s no denying that small-cap stocks have been heading northward like a herd of buffalos in the springtime, galloping to a thunderous 79% gain from the stock market low in March to mid-October. Like a herd of buffalos, there are so many of them, it’s impossible to pick which one will lead the pack.
For this reason, small-cap stocks seem tailor-made for mutual funds, which offer the diversification and professional management that are essential for success and that an individual investor would find hard to replicate. There are hundreds of mutual funds that invest in small cap stocks–loosely defined as having a market capitalization of less than $3 billion–so finding the right fund takes a bit of digging.
Dividing the small-cap universe into growth and value styles narrows the range of options somewhat. For the year to date through October 9, small-cap growth stocks, as measured by the S&P SmallCap 600 Growth index, outperformed small-cap value stocks handily, with the growth index rising 23.2% compared to a 17.5% gain for the value side.
Even sticking with small-cap growth funds, however, there are well over 100 funds to choose from.