Investors seeking high growth potential often look toward small-cap mutual funds as an essential part of a diversified portfolio. Small-cap mutual funds focus on investing in companies with smaller market capitalizations, typically between $300 million and $2 billion. These funds are generally more volatile but can offer substantial returns, especially when the broader economy is in a growth phase. For 2024, several small-cap funds are poised to stand out for investors aiming for aggressive growth.
In this article, we’ll explore the characteristics of small-cap mutual funds, discuss why they’re appealing in 2024, and review some of the top funds to consider.
Why Small-Cap Mutual Funds?
Small-cap stocks, and by extension, small-cap mutual funds, offer unique growth opportunities:
High Growth Potential: Small-cap companies are often in the early stages of expansion, giving them significant room for growth. Many are innovators or disruptors, making them attractive for aggressive investors.
Market Inefficiencies: Institutional investors tend to overlook smaller companies, leaving more room for active managers to identify undervalued stocks and capitalize on market inefficiencies.
Outperformance in Recovery Phases: Historically, small-cap stocks have outperformed during economic recovery periods as investors look for higher returns once economic conditions stabilize.
However, small-cap funds come with risks:
Higher Volatility: Small-cap stocks are more sensitive to economic cycles and tend to have higher price swings.
Liquidity Issues: Smaller companies can be less liquid, making it harder for fund managers to buy and sell shares efficiently.
Despite these risks, small-cap mutual funds remain a viable investment option for long-term growth, especially for investors willing to tolerate short-term volatility.
Factors to Consider When Choosing Small-Cap Mutual Funds
When selecting a small-cap mutual fund, here are some factors to keep in mind:
Fund Performance: Look for consistent returns over a three- to five-year period, though past performance isn’t always a guarantee of future success.
Expense Ratios: High fees can eat into returns, so comparing expense ratios is essential. Aim for a fund with a low expense ratio.
Fund Manager’s Experience: Manager expertise plays a significant role in stock selection. Experienced managers are more adept at navigating the risks and opportunities in small-cap investing.
Turnover Rate: High turnover can increase transaction costs. Look for funds with a turnover rate that aligns with your investment philosophy.
Now, let’s explore some top small-cap mutual funds to consider in 2024.
Top Small Cap Mutual Funds for 2024
1. T. Rowe Price Small-Cap Stock Fund (PRDSX)
Fund Overview: T. Rowe Price Small-Cap Stock Fund (PRDSX) has a long-standing reputation for delivering strong returns in the small-cap sector. Its diversified approach, coupled with a focus on companies with long-term growth potential, makes it appealing for investors looking to balance risk and reward.
Key Details:
Expense Ratio: Approximately 0.91%
Five-Year Annualized Return: 10.23%
Fund Manager: Managed by Frank M. Alonso, a seasoned investor with experience in small-cap equity.
Why It’s Worth Watching: PRDSX’s disciplined approach to finding undervalued companies has historically helped it withstand market volatility. The fund’s exposure to various sectors allows it to capitalize on diverse growth trends in 2024.
2. Vanguard Small-Cap Index Fund (VSMAX)
Fund Overview: Vanguard Small-Cap Index Fund is a low-cost, passively managed fund that tracks the performance of the CRSP US Small-Cap Index. While it doesn’t rely on active management, its broad diversification across industries provides stable exposure to the small-cap market.
Key Details:
Expense Ratio: 0.05%
Five-Year Annualized Return: 9.85%
Fund Type: Index Fund
Why It’s Worth Watching: The low expense ratio, a hallmark of Vanguard funds, enables investors to maximize returns by minimizing fees. VSMAX’s passive approach offers a straightforward way to gain exposure to small-cap stocks.
3. Fidelity Small Cap Growth Fund (FCPGX)
Fund Overview: FCPGX is an actively managed fund that focuses on high-growth small-cap companies. The fund’s managers seek out companies with above-average growth prospects, which could make it appealing in a growth-centric investment environment.
Key Details:
Expense Ratio: 0.88%
Five-Year Annualized Return: 12.10%
Fund Manager: Lead manager Patrick Venanzi has a history of identifying high-growth companies in emerging sectors.
Why It’s Worth Watching: Fidelity’s focus on growth and a disciplined approach to stock selection makes it a standout in the small-cap space. The fund has delivered consistently higher returns compared to its peers, which makes it an attractive option for aggressive investors in 2024.
4. American Century Small Cap Growth Fund (ANOIX)
Fund Overview: ANOIX seeks to invest in small-cap companies with the potential for above-average growth, often focusing on sectors with strong long-term demand. The fund’s bottom-up investment approach allows it to identify companies with unique growth prospects.
Key Details:
Expense Ratio: 1.21%
Five-Year Annualized Return: 13.02%
Fund Manager: Managed by Justin Brown and Greg Walsh, both experienced in the small-cap arena.
Why It’s Worth Watching: American Century’s focus on innovation and technological growth sectors positions ANOIX well for 2024. Though the expense ratio is higher, the fund’s consistent performance may justify the cost.
5. Invesco Small Cap Growth Fund (GTSIX)
Fund Overview: Invesco Small Cap Growth Fund aims to invest in small companies with potential for high growth. Its strategy involves selecting companies in the early stages of expansion, particularly in tech, healthcare, and industrials.
Key Details:
Expense Ratio: 1.01%
Five-Year Annualized Return: 11.85%
Fund Manager: Managed by Justin Livengood, with a keen eye for growth stocks in emerging sectors.
Why It’s Worth Watching: Invesco’s GTSIX fund is well-positioned to capitalize on small-cap growth opportunities in rapidly advancing industries. Its sector allocation aligns well with anticipated growth trends in 2024, making it a compelling choice for high-growth investors.
6. Janus Henderson Small Cap Value Fund (JSCVX)
Fund Overview: For those looking for a value-oriented approach, the Janus Henderson Small Cap Value Fund (JSCVX) offers a unique proposition by focusing on small-cap stocks that are currently undervalued but show growth potential. This fund is suitable for investors seeking lower volatility with solid growth opportunities.
Key Details:
Expense Ratio: 1.23%
Five-Year Annualized Return: 8.56%
Fund Manager: Managed by Jonathan Coleman, an expert in value-driven stock selection.
Why It’s Worth Watching: Value investing in the small-cap space can be a rewarding strategy, especially in volatile market conditions. JSCVX’s focus on undervalued small caps could offer stable returns in 2024.
7. Franklin Small Cap Growth Fund (FSSMX)
Fund Overview: FSSMX aims to invest in small companies with growth potential, focusing heavily on emerging and high-growth sectors. This fund’s approach can be ideal for investors interested in tech and healthcare advancements.
Key Details:
Expense Ratio: 0.93%
Five-Year Annualized Return: 12.35%
Fund Manager: Michael McCarthy leads this fund, focusing on high-potential small caps with innovative business models.
Why It’s Worth Watching: FSSMX’s performance in recent years has been strong, supported by investments in healthcare and technology sectors—areas that are expected to continue growing in 2024.
8. Schwab Small-Cap Index Fund (SWSSX)
Fund Overview: SWSSX is another index-based small-cap fund. By tracking the Russell 2000 Index, it offers broad exposure to small-cap stocks at a low cost, which can be attractive for cost-conscious investors.
Key Details:
Expense Ratio: 0.04%
Five-Year Annualized Return: 9.74%
Fund Type: Index Fund
Why It’s Worth Watching: Schwab’s low-cost structure and passive management make SWSSX a solid choice for investors who want exposure to small-cap stocks without active management fees. Its broad diversification helps minimize the risks associated with individual stocks.
Tips for Investing in Small-Cap Funds in 2024
Diversify Across Fund Types: Consider investing in both actively managed and index-based small-cap funds to balance cost and potential returns.
Monitor Market Conditions: Small-cap stocks are more sensitive to market cycles, so staying aware of economic trends is essential.
Evaluate the Fund’s Holdings: Understanding which sectors and stocks are held by the fund can give you insights into growth potential and risk
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