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.
Buffalo aims to buy small companies that seem poised to grow substantially for the next three to five years. The portfolio managers identify economic trends that will enable industries to grow. Then the managers pinpoint companies that are positioned to ride the trends. PRLB), which makes customized industrial parts. The business is benefiting from the growth in U.S. manufacturing that relies on new technologies. Customers send Proto Labs electronic files that describe parts. Within minutes of receiving the orders, Proto Labs responds with a cost estimate and the date when the parts can be delivered. Another holding is Omnicell ( OMCL), which enables hospitals to track the location of drugs from the time they arrive at the facility until the medications reach the patient. Demand has been growing as hospitals struggle to eliminate waste and control costs. DSX), which transports dry bulk cargo, such as iron ore and coal. In recent months, shipping companies have suffered as global trade has stagnated. But Diana Shipping can gain market share and rebound strongly when trade revives. One holding with growing revenue is SciQuest ( SQI), which provides cloud-based management systems to universities and government agencies. The software enables customers to control costs by efficiently managing inventory and handling accounts payable. At the time of publication, Luxenberg had no positions in securities mentioned. Follow @StanLuxenberg This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.