4 Best-Performing Small-Cap Growth Mutual Funds Of Q2

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.

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