5 Mutual Funds to Play the Small Cap Surge

Stocks have enjoyed a fantastic run of late, and leading the way higher is the small cap segment of the equity market. To give you a sense of just how much better small cap stocks have done versus their larger-cap brethren, consider that in the third quarter the benchmark small-cap measure, the Russell 2000 index, rose over 9%. Smaller, microcap stocks also did quite well, gaining nearly 8% in Q3. That compares quite favorably to the performance of stocks in the large cap S&P 500 index, which managed a gain of just 3.89% in the third quarter.

It’s well-known that when the economy is relatively weak, investors will turn to the fastest moving stocks out there seeking big returns. This is one reason why small caps have done so well of late[1]. It’s also a big reason why small cap stocks in the emerging markets have outperformed.

Here then are five top-performing small cap mutual funds you can buy to take advantage of the small cap surge.

Manager: Jayme C. Wiggins (since 2010), Gregory M Estes (since 2009), Mark I. Travis (since 2009)
Total assets: $585.9 million
Expenses: 1.57%
Load: None
Status: Open
Minimum initial investment: $2,500

Intrepid Small Cap (MUTF: ICMAX[3]) seeks long-term capital appreciation and boasts a year-to-date return of 11.36%. Among this non-diversified fund’s top holdings are document technology firm EPIQ Systems, Inc. (NASDAQ: EPIQ[4]), retail food sales company Weis Markets, Inc. (NYSE: WMK[5]) and retail rental firm Rent-A-Center, Inc (NASDAQ: RCII[6]).

Data as of Oct. 19.

Manager: David A. Daglio (since 2003)
Total assets: $1.2 billion
Expenses: 1.22%
Load: 5.75
Status: Open
Minimum initial investment: $1,000

Although not strictly a small cap fund, the Dreyfus Midcap Value A (MUTF: DMCVX[7]) fund, which seeks to surpass the performance of the Russell Midcap Value Index, is a good way to gain exposure to fast-moving smaller companies. The fund is up 11.82% year to date, and some of its top holdings include utility holding company Ameren Corporation (NYSE: AEE[8]), packing firm Newell Rubbermaid Inc. (NYSE: NWL[9]) and medical device maker St. Jude Medical, Inc. (NYSE: STJ[10]).

Data as of Oct. 19.

Manager: Larry S. Eiben (since 2006), Kevin J Gates (since 2006), Richard J Gates (since 2006), Eric Newman (since 2006), Chao Chen (since 2007), Yan Liu (since 2009)
Total assets: $34.4 million
Expenses: 1.87%
Load: None
Minimum initial investment: $5,000

TFS Small Cap (MUTF: TFSSX[11]) turns up the dial with a year-to-date total return of 13.15%. TFSSX seeks long-term capital appreciation. In addition, it seeks to outperform the Russell 2000(R) index. The fund claims such winning stocks as metals firm Century Aluminum Company (NASDAQ: CENX[12]), biopharmaceutical outfit ViroPharma Incorporated (NASDAQ: VPHM[13]) and top-performing airline stock US Airways Group, Inc. (NYSE: LCC[14]). 

Data as of Oct. 19.

Manager: Scott L. Barbee (since 1998)
Total assets: $158.7 million
Expenses: 1.50%
Load: None
Minimum initial investment: $10,000

Aegis Value (MUTF: AVALX[15]) seeks small cap companies believed to be undervalued based on a company’s book value, revenue and cash flow. So far in 2010, the fund is up 13.94%, proving that there is big performance in the small cap value space. Aegis’ top holdings include oil drilling firm ENSCO PLC (NYSE: ESV[16]), garment design and manufacturing firm Delta Apparel, Inc. (AMEX: DLA[17]) and furniture seller Bassett Furniture Industries Inc. (NASDAQ: BSET[18]).

Data as of Oct. 19.

Manager: Mario J. Gabelli (since 1998), Laura Linehan (since 1998), Walter K. Walsh (since 1998)
Total assets: $373.0 million
Expenses: 2.32%
Load: 1.00
Minimum initial investment: $10,000

GAMCO Westwood Mighty Mites C (MUTF: WMMCX[19]) seeks long-term capital appreciation and focuses on microcap companies which appear to be underpriced relative to their private market value. With year-to-date gains of 15.89%, this fund is atop our list of five outstanding mutual funds to take advantage of the small cap surge. This fund blends micro and small cap stocks that have both a growth and value orientation, proving that there are big profits in an assortment of little stocks. Top performers in the fund include specialty material and chemical firm Ferro Corporation (NYSE: FOE[20]), investment firm Epoch Holding Corp (NASDAQ: EPHC[21]) and microwave technology company Herley Industries, Inc. (NASDAQ: HRLY[22]).

Data as of Oct. 19.