Top 5 Small Cap Mutual Funds

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).

ING 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.

Nuveen 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.