– and are headed higher long term.
This is why small-cap funds – which consist of stocks of companies that maintain a market capitalization of anywhere between $500 million and $2 billion – are worthy of a closer look.
You see, as the U.S. economy strengthens and interest rates start to rise, smaller companies will benefit the most from this type of environment.
Indeed, the small-cap sector has been making significant gains in recent weeks – small-cap growth funds led U.S. stocks for the week ending May 30 – after experiencing minor setbacks at the start of the year.
Small-cap funds are now primed to break out during the remainder of the year, as the Russell 2000, a stock market index of approximately 2,000 small-cap funds, has added more than 6% since mid-May.
But with plenty of upside still ahead, it’s certainly not too late to add small-cap funds to your portfolio. With modest risk, a lot of prospects, and high potential for growth, small-cap funds are possibly one of the best investment hubs available today.
Let’s now take a look at the benefits – and the risks – of small-cap funds…
Small-Cap Funds Offer Higher Returns with Moderate Risk
Diversification is a time-tested strategy for reducing risk and boosting returns, and small-cap funds accomplish this by tapping into different sectors and an array of companies that are young and potentially prosperous because their real value is yet to be determined.
And in spite of a common concern that small-cap funds invest in firms that are less secure than their large-cap counterparts, financial experts assert that small-cap funds actually offer the best overall rate of returns.
In fact, investors who desire higher returns on investments with moderate risk may find that small caps are the best route to take.
Small-cap funds do, however, come with volatility: Macroeconomic matters, changes in domestic policies, new (and expensive) regulations being implemented, and the difficulty sometimes experienced by fresher companies in adapting to a changing economic landscape can all make for a bumpy ride.
But the upside is that small caps often progress more rapidly in an economic recovery.
Moving forward, keep your eyes on these three small-cap funds.
Three Small-Cap Funds to Watch
Direxion Monthly Small Cap Bull 2X (MUTF: DXRLX): This small-cap fund hunts out monthly returns that are two times greater than the Russell 2000. It also invests a substantial percentage of its assets into securities in the market index or in outlets that are exposed to the index.
Wells Fargo Advantage Global Dividend Opportunity Fund (NYSE: EOD): Not only is this fund managed by one of the most stable financial institutions in the world, but this global exchange-traded fund also has access to a variety of stocks in the United States and across the globe. It offers an 8.7% yield to shareholders each quarter.
Vanguard S&P Small-Cap 600 ETF (NYSE Arca: VIOO): This small-cap fund is up nearly 20% from the same time a year ago. It invests in stocks in the S&P Small-Cap 600 Index and provides high-return growth for long-term investors who want access to this market.
We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet.And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.