Protect Your Downside With These 2 Small-Growth Funds
While Wasatch Core Growth and Conestoga Small Cap both offer downside protection, investors should be aware of their very different sector exposures.
While Wasatch Core Growth and Conestoga Small Cap both offer downside protection, investors should be aware of their very different sector exposures.
Laura Lallos: With small-cap benchmarks lagging in 2015, investors may be tempted to buy in, but also wary. Morningstar FundInvestor newsletter recently came up with a list of small-cap Morningstar Medalists that have had lower downside capture ratios than the Vanguard Small Cap Index (NAESX).
That is to say these funds have performed better than small-cap peers in down markets during the past decade. Two of them are Silver-rated small-growth funds: Wasatch Core Growth (WGROX) and Conestoga Small Cap (CCASX). They both have below-average Morningstar Risk ratings, competitive performance, reasonable expense ratios, small asset bases, and long-tenured managers.
That said, there are key differences: Wasatch seeks companies with defensible economic advantages and lets stock-picking drive portfolio construction. Assets have clustered in industrials and financials stocks, where the fund is overweight relative to small-growth peers. Meanwhile, it has a significant underweighting in healthcare.
Conestoga's managers take a fairly conservative approach, but they also have a lot of leeway when it comes to sector weightings: The fund has nearly 40% in technology stocks, a significant overweighting even for a small-cap growth fund.
These funds provide very different sector diversification. Both, however, are solid choices for small-cap growth exposure.
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