In the second quarter, continued tariff-related tensions between the United States and its key trading partners boosted small-caps as they are mostly immune to international disputes. Solid jobs data underscoring the economy’s strength coupled with Trump administration’s tax cut policies also helped small-caps scale north.

Courtesy of such bullish factors, domestically focused funds like small-cap growth funds are strong investment options. This is evident from the fact, that small-cap growth funds comprised the best-performing equity group in the second quarter among the major Thomson Reuters Lipper’s U.S. Diversified Equity Funds Categories.

Small-Cap Growth Funds Beat the Rest in Q2

In Q2, equity funds posted an average return of 1.8%. The increase was supported by a gain of 3.9% in Thomson Reuters Lipper’s Sector Equity Funds macro-classification and a return of 3.7% in Diversified Equity Funds macro-classification. In the U.S. Diversified Equity Funds matrix, small-cap growth funds posted returns of around 8.7%, the best among all the categories.

Further, the Russell 2000 index has jumped 10% so far this year, which is considerably higher than the S&P 500’s rise of 3.3% and the Dow’s decrease of 0.2% during the same period. In fact, the small-cap growth index has surpassed all the three major indexes in the second quarter.

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What Drove the Small-Cap Index Higher?

Trump-induced tariff-related concerns are definitely good news for small-cap stocks as unlike big companies, they generate bulk of their revenues domestically. Moreover, last year, the much awaited Tax Bill was finally signed by President Trump. Known as the Tax Cuts and Jobs Act of 2017, the reform permanently slashes corporate tax rates from 35% to 21%.

Low tax scenario along with strong business sentiment, stronger domestic economy and upbeat jobs report bode well for small-cap stocks.

According to Bank of America Merrill Lynch, companies from the Russell 2000 generate not more than 21% of their revenues from outside, while the S&P 500 companies get 30% of their revenues from foreign markets. In this context, shifting to funds focused on small-cap stocks that have significant exposure to the domestic market is clearly a wise investment.

Though small-cap funds are believed to have a higher level of volatility compared with large- and mid-cap funds, these have greater growth potential and are expected to maintain this momentum in the coming months. Hence, risk-loving investors can pick these funds.

Buy These 4 Small-Cap Growth Mutual Funds

In this circumstance, we have selected four mutual funds, which have significant exposure to small-cap growth stocks. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). These funds also have encouraging year-to-date (YTD) returns and minimum initial investment within $5000. Also, each of these funds has a low expense ratio.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why should one be parking money in mutual funds.

Bridgeway Small-Cap Growth (BRSGX - Free Report) maintains a diversified portfolio by investing a large share of its assets in small-cap companies, having impressive growth prospects. BRSGX invests in companies that are listed on the NYSE, NYSE MKT and NASDAQ.

BRSGX carries an expense ratio of 0.94% compared with the category average of 1.43%. Moreover, BRSGX requires a minimal initial investment of $2,000. The fund has YTD returns of 9.6%.

BRSGX has a Zacks Mutual Fund Rank #1. Further, John N.R. Montgomery is one of the fund managers of BRSGX since 2003.

BlackRock Small Cap Growth Fund (CSGEX - Free Report)  invests a major portion of its assets in equity securities of small-cap domestic companies. According to CSGEX advisors, companies with market cap similar to those included on the Russell 2000 index are considered small-cap firms.

CSGEX carries an expense ratio of 0.75% compared with the category average of 1.43%. Moreover, CSGEX requires a minimal initial investment of $1,000. The fund has YTD returns of 12.3%.

CSGEX has a Zacks Mutual Fund Rank #1. Further, Travis Cooke is one of the fund managers of CSGEX since 2013.

Goldman Sachs Small Cap Growth Insights A (GSAOX - Free Report) maintains a diversified portfolio by investing a bulk of its assets in equity securities of small-cap domestic companies. Most of these small-cap companies are included on the Russell 2000 Index.

GSAOX carries an expense ratio of 1.23% compared with the category average of 1.43%. Moreover, GSAOX requires a minimal initial investment of $1,000. The fund has YTD returns of 12.2%.

GSAOX has a Zacks Mutual Fund Rank #2. Further, Len Ioffe is one of the fund managers of GSAOX since 2011.

Loomis Sayles Small Cap Growth Retail (LCGRX - Free Report) invests a big part of its assets in equity securities of small-cap companies. The fund focuses on those small-cap companies, whose market cap is similar to those within the range of the Russell 2000 Index or have market cap of $3 billion or lower.

LCGRX carries an expense ratio of 1.20% compared with the category average of 1.43%. Moreover, LCGRX requires a minimal initial investment of $2,500. The fund has YTD returns of 14.6%.

LCGRX has a Zacks Mutual Fund Rank #2. Further, Mark F. Burns is one of the fund managers of LCGRX since 2005.