BOSTON (TheStreet) -- Investors bullish on prospects for a stronger economy next year have been buying everything from commodities and currencies to junk bonds and small-cap stocks.
They could go one step further and investigate mutual funds that own tiny companies that cost less than $10 a share. That means micro-cap funds.
Micro-cap fund managers seek bargain-priced stocks that may become the next Apple (AAPL), which now trades at $321 a share. The maker of the iPad and iPhone, once a micro-cap stock, now has a market value of $294 billion. Sometimes micro-caps amount to total losses, a rare occurrence in the large-cap category.
The micro-cap stock label is used loosely to describe publicly traded companies with market capitalizations of $50 million to $300 million.Indicative of investor interest in these smaller stocks, the various categories of small-cap funds as tracked by Morningstar have a return of 25% this year, versus the 13% gain by all categories of large-cap funds. And the pace has been picking up. The Russell 2000 Index, which gives a wide measure of small-cap market activity, is up about 9.7% since the end of October, double the Standard & Poor's 500 Index's 4.4% gain. Micro-cap investing has a Wild West reputation, and, indeed, it's the most volatile sector of the market, but some funds have long-term returns that match those of some of the most conservative investments. For example, the Perritt Micro Cap Opportunities Fund (PRCGX) has a 14% 10-year annualized return, while the Wasatch Micro Cap Fund (WMICX) has an 11% gain. The S&P 500, in contrast, has dropped 9% since December 2000. Here are some highly rated funds with micro-cap holdings and a few of their stocks trading for under $10 a share:
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV