Investors looking to mop up handsome gains over a short run often invest in small cap funds. Though riskier in character than other fund categories, these funds have the ability to deliver appreciably higher returns due to two primary reasons. 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.

Below we will share with you 5 top rated small-cap mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.  To view the Zacks Rank and past performance of all small-cap funds, investors can click here to see the complete list of funds.

Pioneer Oak Ridge Small Cap Growth A (ORIGX) seeks capital growth. The fund invests a large share of its assets in companies with small market capitalizations. A maximum of 20% of its total assets may be utilized to purchase foreign equity and debt securities. The small-cap mutual fund has a three year annualized return of 20%.

The small-cap mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.40% compared to a category average of 1.45%.

Needham Small Cap Growth (NESGX) invests the majority of its assets in domestic equity securities of companies traded on a domestic security exchanges. The fund focuses on acquiring stocks which are attractively priced relative to their underlying value. The small-cap mutual fund has a three year annualized return of 17.28%.

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

JHancock Small Cap Equity A (SPVAX) seeks capital growth. The fund invests a large proportion of its assets in small companies. Not more than 5% of its assets may be utilized to purchase a single security. A maximum of 10% of its assets may be invested in cash or cash equivalents. This small-cap mutual fund has a three year annualized return of 23.54%.

Robert P. Shea is the fund manager and he has managed this small-cap mutual fund since 2009.

AllianceBernstein Small Cap Growth A (QUASX) invests heavily in equity securities of small-cap companies with market capitalizations of less than $10 million. At any given point in time the fund invests in between 95 to 125 companies. This small-cap mutual fund has a three year annualized return of 29.07%.

The small-cap mutual fund has a minimum initial investment of $2,500 and an expense ratio of 1.43% compared to a category average of 1.45%.

Virtus Small-Cap Sustainable Growth A (PSGAX) seeks capital appreciation over the long term. The fund invests in small cap companies while maintaining the risk profile of the S&P 500 which consists entirely of large cap companies. This small-cap mutual fund has a three year annualized return of 22.17%.

Todd A. Beiley is the fund manager and he has managed this small-cap mutual fund since 2008.

To view the Zacks Rank and past performance of all small-cap mutual funds, investors can click here to see the complete list of funds.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds.


View All Zacks #1 Ranked Mutual Funds
 
(NESGX): ETF Research Reports
 
(ORIGX): ETF Research Reports
 
(PSGAX): ETF Research Reports
 
(QUASX): ETF Research Reports
 
(SPVAX): ETF Research Reports
 
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