It seems that any time positive news comes out about the state of the economy, growth funds and small-cap funds in particular get a nifty little boost in value. It stands to reason, of course, that as the markets react to such positive news, so too should mutual funds. But what mutual funds stand to benefit most? This is a question that a lot of investors, like those who want to know where to invest $20,000 or so, have.

Homebuilders
One area that gets a nice boost (or gets tanked) every month relates to the housing market. Since this sector was blamed for many of the problems relating to the latest recession (if it was not the bank’s imprudent lending practices, then it was housing for its hyper-inflated values and the subsequent flooding of inventory), it makes sense that housing stocks will be particularly, positively influenced by positive news for the sector.

For example, on February 2nd, positive news about housing  had the impact of bumping one particular housing company’s stock price by as much as 10% in the session. Other related shares got a nice boost of no less than 5%. A nice little return, wouldn’t you agree?

Risks
The risks with such big moves is twofold. First, this has the effect of increasing volatility for these types of shares, making them more difficult to trade individually. An investor needs to exercise displine to realize the gains he or she wants and not stay in too long; otherwise, they will record an immediate loss.

What Mutual Funds Own Such Stocks?
The best way to find the funds that invest in these types of sensitive shares is to visit Yahoo! Finance and search under the security’s Major Holder’s section. This gives a fairly accurate snapshot of what companies are owned by what mutual funds.

In the case of housing stocks, Vanguard has taken a fairly large interest in several of the housing stocks in its Small-Cap and Mid-Cap funds. It makes sense. Housing continues to be out of favor and these types of out-of-favor stocks are often what turn regular investors into astute investors.

As well, housing is one of those areas that will need to improve before the rest of the economy improves. That means that it is quite likely that the sector could receive a boost through some type of government incentive that sees people buying more and more houses and in the interest of keeping people employed (or hiring more people back), some of these incentives are likely to incent or at least benefit the homebuilders. Vanguard has taken an interesting approach (among others).

Does this suggest that mid- and small-cap mutual funds is where to invest $20,000 (getting back to that question)? Probably not for the whole $20,000. But 20-25% of an aggressive portfolio that can benefit from a mid- to long-term investment period, sure… no, absolutely. In fact, they can be expected to easily outperform growth funds held for that same period.

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