Best Small Cap Mutual Funds

If you're in the market for a small-cap mutual fund, choose carefully with Benzinga’s help. Doing so can mean the difference between a portfolio boom or bust.

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Contributor, Benzinga
Updated: May 25, 2021

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The words small-cap, mid-cap, and large-cap might not mean much to you if you’re a novice investor. They're actually just fancy terms for how much a particular firm has in total capital.

Here are three examples of each type of market capitalization:

As you can see, large-cap firms such as Apple are the most well-known. Other examples of large-cap firms include Alphabet, Starbucks, Amazon and Berkshire Hathaway. Rite Aid Corp. is a great example of a mid-cap firm, and CryoLife, Inc. (NYSE:CRY) is considered a small-cap. If you’ve never heard of a particular small-cap firm, that’s normal. Typically, small-cap funds aren’t as well-known but can still deliver a sizeable punch to your portfolio.

What are Small-Cap Mutual Funds?

Small-cap refers to companies with a relatively small market capitalization. The official amount of capital may vary slightly amongst traders and the industry, but the market value parameters of outstanding shares in small-cap firms generally range between $300 million and $2 billion.

A small cap mutual fund is a collection of stocks handpicked by industry experts and sold as a type of pre-packaged bundle. In this case, they’re bundled stock of many small-cap firms, which means they’re more diversified than individual stocks.

Small-cap mutual funds tend to grow more quickly than large-cap mutual funds and usually use their growth to pay for expansion rather than dividends, as these firms are typically looking to grow in order to expand their market share.

Why Invest in Small-Cap Mutual Funds?

Small-cap mutual funds can be a fascinating study, particularly during different points in any market cycle (both bear and bull markets). Here are some inherent characteristics that all small-caps have under their belt:

  • They can be volatile. A bundle of companies exactly like CryoLife, Inc., compared to groups of companies like Alphabet and Starbucks, are going to be able to grow faster than large-cap companies, but they’re also intrinsically less stable because smaller companies can’t weather market storms as well as large-cap firms can. Therefore, they tend to have a higher failure rate.
  • They offer growth opportunities. If you’re a young investor and can stand a little more risk, or if you’re risk-tolerant by nature, the aggressive growth potential of small-cap mutual funds might interest you.
  • Mutual funds ensure that you’re automatically diversified. In short, this means that you don’t put all your eggs in one basket. When you invest in individual stocks, the opposite is true. If one company in your mutual fund bundle has a bad quarter, that likely won’t affect everything else in your portfolio. (On the other hand, if a single stock you’ve invested in goes through a downturn, you might immediately lose money.)
  • Performance can be exceptional. Historically, small-cap stocks have outperformed large-cap stocks. According to Morningstar Ibbotson data, from 1926 through 2012, small-cap stocks averaged an annual return of 12.28% compared to large-caps’ return of 10.08%.

Benzinga's Top Picks

1. Vanguard Small-Cap Index Fund (NAESX)

Vanguard Small-Cap Index Fund (NAESX)The Vanguard Small-Cap Index Fund totals about $93 billion, and its holdings include over 1,400 small companies. It tracks the CRSP U.S. Small Cap Index, which is designed to include the bottom 2% to 15% of firms’ market capitalization. Its largest holdings comprise the financial, consumer goods and industrial sectors and includes Salix Pharmaceuticals, Foot Locker and Gannett Co.

For more information, including performance, commissions and fees, check out the fund on Vanguard’s website, and also check out Benzinga's Vanguard review.

2. T. Rowe Price QM U.S. Small-Cap Growth Equity Fund (PRDSX)

T. Rowe Price QM U.S. Small-Cap Growth Equity Fund (PRDSX)The T. Rowe Price QM U.S. Small-Cap Growth Equity Fund seeks long-term growth by investing in a quantitative management strategy, which represents the “QM” in the name of the fund. Of the fund’s net assets, 23.3% are comprised of health care, 20.5% information technology, 16.8% industrials and business services. The ten largest holdings include Bright Horizons Family Solutions, Burlington Stores, Cable One, Exact Sciences, Fair Isaac, HEICO, Molina Healthcare, Take-Two Interactive Software, Teledyne Technologies and Vail Resorts.

For more details, including performance, commissions and fees, check out T. Rowe’s fund overview.

3. T. Rowe Price New Horizons (PRNHX)

T. Rowe Price New Horizons (PRNHX)This mutual fund seeks long-term capital growth through investment in common stocks of small, rapidly growing companies. According to T. Rowe’s Quarterly Fund Fact Sheet, The T. Rowe Price New Horizons fund focuses on a diversified group of small, emerging growth companies. The fund may also invest in companies that offer accelerated earnings growth because of rejuvenated management, new products, or structural changes in the economy.

For more information, including commissions and fees, check out T. Rowe’s Price New Horizons fund information online.

4. Fidelity Small Cap Growth (FCPGX)

Fidelity Small Cap Growth (FCPGX)For the quarter ending September 30, 2018, the Fidelity Small Cap Growth Fund's Retail Class shares gained 8.30% and outpaced the Russell 2000 Growth Index. CarGurus, the most popular online automotive retailer in the U.S., was the fund’s biggest holding at the end of the quarter.

Led by technology and health care as well as a few regional banks, the Fidelity Small Cap Growth fund is comprised of companies with strong competitive positions in growing markets among both established and emerging growers.

Learn more details about the fund, including pricing and performance, and check out Benzinga's Fidelity Investments review. 

5. BlackRock Advantage Small Cap Growth Fund (CSGEX)

BlackRock Advantage Small Cap Growth Fund (CSGEX)BlackRock Advisors’ Advantage Small Cap Growth Fund packs a punch with a five-year annualized return of 11.59%. The companies that make up its top holdings include Insperity, Inc., EastGroup Properties, Inc., Universal Forest Products, Inc., Comfort Systems USA, Inc. and Five Below, Inc. Its top three sectors include health care, industrials and information technology.

Learn more about the BlackRock Advantage Small Cap Growth Fund.

Final thoughts

Whether you select index funds, which track a market index, or actively managed mutual funds (your fund manager chooses the funds), use Benzinga’s tools to your advantage. You’ll find the insight of a knowledgeable team at Benzinga to help you choose domestic small-cap offerings and more.

Check out Benzinga’s Small Cap Analysis to explore small-cap mutual funds that’ll neatly fit into your portfolio.