The Best Small-Cap Funds
These small-company-focused mutual funds and ETFs all earn Morningstar Analyst Ratings of Gold.
Investors gravitate to small companies for many reasons. Some want a small dose of small companies in their portfolios to round out their exposure to the overall stock market. Others may want to tilt their portfolios toward small caps after a period of large-cap outperformance, such as we've seen during the past several years. Still others may want to participate in what has been called the "small-cap effect," or the theory that smaller companies have greater growth opportunities than larger companies and, as a result, have greater total return potential over time.
Before adding a small-cap fund to your portfolio mix, though, double check that you don’t already have plenty of exposure to small-company stocks through your core equity fund holdings; Morningstar’s Instant X-Ray feature can help you determine your portfolio’s current small-cap stake. While there’s no “right” allocation to small-company stocks, Morningstar’s Lifetime Allocation Indexes (which you can use to benchmark your asset allocation) suggest up to an 11% position in domestic small caps, depending on your life stage.
Susan Dziubinski does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.