What Are the Best Small Cap Mutual Funds?

The art of investment is simple: Keep it dull. Small cap mutual funds feed the need for adventure without breaking the bank.

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"Investors just have to remember you never want to put all your eggs in one basket,” says financial expert Brant Spesshardt. “It’s long term, and you want to try to keep your investments as simple and as boring as possible." This philosophy is clear, and one echoed by such experts as Warren Buffet. But keeping investments too low risk means a pretty slow return on our investments.

That’s where small cap mutual funds come in. Small cap mutual funds are one of the spicier of mutual funds, for those who are risk-averse but not too risk-averse. These are bundles of investments in growing companies, businesses whose stocks could go way up, or way down. The reason small cap mutual funds are great is that they’re less risky than investing in individual companies. Diversification is the magic word here, grouping many funds together so that your risk factor is limited. The only question is, which one will you choose?

It’s as simple as Yelp: Just look at the ratings! Small cap mutual funds are ranked by return so that with a little research you can choose the right one for you. It just depends on your priorities, and which sector of the economy you choose as the biggest opportunity for growth. Not to mention those expense ratios, which vary considerably.

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1) Vanguard Small-Cap Index Fund

Vanguard index funds are famous--after all, the company pioneered the concept in the first place. With 1,413 stocks, and a net asset of $4.5 billion, Vanguard small-cap index funds are huge. Vanguard invests in certain sectors of the US economy, largely finance, industry and consumer services in that order. The major advantage of Vanguard is their low expense ratios, only 0.17 percent.

2) Fidelity Small-Cap Index Fund

Fidelity small-cap fund is pretty new, one that only recently began trading in 2011. Almost 80 percent of its assets are within the Russell 2000 index, a market capitalization-weighted index that follows only small-cap companies. Its fund is at $6.56 billion with expense ratios of only 0.03 percent. This fund is extremely diversified, with just under two thousand stocks and the top ten stocks holding only 2.19 percent of the total portfolio. The largest sector of investment is finance, followed by health and information technology. A great fund for any investor who’s new to the game.

3) Fidelity Small-Cap Enhanced Index Fund

Just like the Fidelity Small-Cap Index Fund, around 80 percent of the Fidelity Small-Cap Enhanced Index Fund’s assets are contained in the Russell 2000 Index. This fund uses a system of quantitative analysis to pick the stocks with the ability to outperform the Russell 2000. The assets are $811 million, with an expense ratio of only 0.64 percent. This fund is relatively small with only 481 holdings, the top ten companies accounting for 6.78 percent of the complete portfolio. The largest sector of investment is in information technology, followed by health care.

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1.50% APY
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5) Vanguard Small-Cap Growth Index Fund

This is another wonderful option for investment in U.S. stock, one that began in 1998 and has huge assets: $25.7 0 billion in funds. This is a fund with only 651 holdings, but the median market cap of the holdings is $5.1 billion. The strategy is substantial companies with moderate risk, just enough to keep your investments respectable and just a little volatile. The Vanguard Small-Cap Growth Index Fund uses the Spliced Small-Cap Growth Index as a benchmark in order to assess investment strategy. This fund is incredibly well balanced, with top sectors evenly split between industry and technology, followed by healthcare and finance. One of the good things about this fund is the low prioritization of finance, which keeps investment relatively secure.