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Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Best Micro-Cap Funds Pay Off Big-Time

Stocks in this article: IDT GSL CCME QCOR BIOS SGU

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:

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