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Small-Cap Index Funds Fall Short



Hodges holds a mix of value and growth stocks that have flown under the radar. The aim is to find holdings that can surprise Wall Street by delivering long stretches of growth. During the past five years the fund returned 31.1% annually, outdoing 99% of peers.

Portfolio manager Eric Marshall likes to find cyclical companies that stand to gain as their industries consolidate and weaker competitors disappear. A favorite holding is Kapstone Paper and Packaging (KS).
Another holding is Shoe Carnival (SCVL).

RS Small Cap Growth aims to find companies that can increase revenues 15% annually for a full market cycle. The portfolio managers prefer businesses that can increase margins by maintaining clear competitive advantages. During the past five years, the fund returned 26.5% annually, outdoing 86% of small growth funds. A recent holding was Team Health (TMH).

William Blair Small-Mid Cap Growth aims to find quality companies that can deliver above-average growth for three to five years. Portfolio manager Rob Lanphier likes to buy promising small stocks and hold them until they become mid caps with capitalizations of up to $10 billion. During the past five years, the fund returned 24.1% annually, outdoing 86% of mid-growth peers. A holding is Pandora (P).

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
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