This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Small-Stock Mutual Funds Keep Growing

NEW YORK ( TheStreet ) -- Small growth stocks have climbed sharply lately, as have the mutual funds that invest in them.

The average small growth mutual fund returned 25.2% this year, compared to 17.8% for the S&P 500, according to Morningstar.

Despite concerns about the Federal Reserve's tapering plans, many small growth mutual funds have continued rallying in recent weeks. During the past month, Buffalo Emerging Opportunities (BUFOX) gained 2.0%, and MFS New Discovery (MNDAX) returned 2.8%. In contrast, the S&P 500 lost 2.2%.

A variety of factors are lifting small growth funds. For starters, the recovering economy is providing a special boost for small stocks. As investors gain more confidence that the economy can avoid recession, they are shifting to riskier small stocks that seem poised to increase sales.

In addition, the small stocks seem well positioned to survive the turbulence that could be caused by Federal Reserve's tapering program.
[Read: <a target="blank" data-add-tracking="true" href=""><em> 5 Things You Have to Know About Buying a Home This Fall</em></a>]

Faced with the prospect that the Fed could slow its bond purchases, investors have pulled out of emerging markets. That has slowed emerging economies and hurt multinational blue-chips that derive a big part of their sales from Asia and Latin America. But many small growth companies have avoided the damage because they serve only U.S. markets.

Concern about tapering has also hurt dividend-paying blue-chips. Investors figure that when the Fed stops buying securities, bond prices will fall and yields will rise. That will make bonds more attractive compared to dividend-paying stocks. But rising rates have done little to harm small growth stocks, since many do not pay dividends.

After their big rally, small growth stocks are no longer cheap. The average small growth fund's portfolio has a price-to-earnings ratio of 22, compared to 18 for the S&P 500. If the economy slips, small stocks could tank. Still, small growth stocks should continue leading the markets as long as the U.S. economy keeps plodding ahead.

To bet that the rally will continue, try Buffalo Emerging Opportunities. During the past five years, the fund returned 17.8% annually, outdoing 99% of peers.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.21 -0.44%
FB $117.80 -0.22%
GOOG $701.26 0.80%
TSLA $211.34 -5.00%
YHOO $36.94 2.61%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs