Small Cap Equity Funds
The Russell 2000 is the Small Cap Index of Choice
Considered the most aggressive among equity funds, small caps will invest in stocks with a market capitalization of less than $2 Billion. This represents the second smallest segment of stocks on the Russell 2000 (the MicroCap index will look at even lower capitalization, but we will limit the scope to small cap equities). For many, the small cap category represents the highest risk among mutual funds… and is often also the highest rewarding.
Given the level of risk involved with investing in small cap securities, mutual funds obviously make the process a lot easier and safer. Even for sophisticated investors who like to pick their own securities but require additional asset class specialization, small cap equity funds will make a great deal of sense as it provides a smart exposure to a market segment that is required for any properly diversified portfolio.
For mutual fund investors, allocating a portion of one’s assets to a small cap equity fund is not unreasonable, but exposure needs to be monitored on an ongoing basis. (It is worth stating here that one of the top mutual fund picks in 2010 was a small cap fund).
The Mutual Fund Site covers several Small Cap Equity Funds in its quarterly mutual fund reviews, but strongly recommends that investors seek recommendations and advice from their financial advisors before investing in such vehicles. Again, the risk can be prohibitive for many despite the returns being consistent and often better than Mid Cap Funds and Large Cap Funds over the long-term.
Other Market Capitalization Categories To Consider