5 Top Mutual Funds to Ride Best Economic Growth Since 2014

The U.S. economy expanded at a better pace in the second quarter, posting the best quarterly GDP growth in around four years, as per the advance estimate of the Department of Commerce. The report highlighted a strong increase in consumer and business spending, rise in exports and growth in government expenditure.

Given this performance, it is likely that the U.S. economy will register a steady growth in the coming quarters. With the domestic economy witnessing stable expansion, growth mutual funds have emerged as prudent investment options.

Q2 GDPAdvanced in Second Estimate

In its advance estimate, GDP increased from the previous estimate of 2.2% to 4.1%, marking the best growth pace since the third quarter of 2014, when GDP growth was 4.9%. It is also the third-highest GDP growth since the 2008 Great Recession. Further, the first-quarter figure was revised upward from 2% to 2.2%.

Additionally, both consumer spending and business investment gained traction in the second quarter. Consumer spending, which accounts for nearly 70% of U.S. economic output, increased from a sluggish 0.5% pace experienced in the January-March quarter to 4% in the advance estimate of the second quarter. Consumer spending registered its best growth in the last three and half years.

Business investment witnessed an increase of 7.3%, while government spending increased 3.5%. Additionally, exports increased 1.06%, registering its biggest growth pace in the last four and half years. Trump administration-induced tax cuts, deregulation and higher spending encouraged consumers and businesses to spend more in the economy, which in turn gave a boost to GDP.

Why Choose Growth Mutual Funds?

With the U.S. economy registering strong growth in recent times, growth funds have become a natural choice for investors, who prefer capital appreciation over the long term to dividend payouts.These funds generally invest in the assets of those companies that carry an above-average growth potential.

Here, we have selected growth funds with varying market caps, a nice mix of which makes a portfolio profitable. Small-cap funds generally have a higher risk exposure but are good choices for investors seeking diversification across different sectors. Small-cap companies have lesser international exposure and are most likely to benefit from the recent economic expansion. Mid-cap funds are not highly susceptible to volatility in broader markets and bear better growth potential than their large-cap counterparts, making them ideal investments.

Buy These 5 Growth Mutual Funds

Following these improvements in the economy, investors may consider growth mutual funds. According to Morningstar, the mid-cap and small-cap growth mutual funds have one-year annualized returns of 18.9% and 22.7%, respectively. Here, we have selected five growth mutual funds that have a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging one-year annualized returns. They also have minimum initial investment within $5000 and low expense ratios.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

Fidelity Small Cap Growth FCPGX invests the majority of its assets in equity securities of small-cap companies. The fund invests both in domestic and foreign companies, which Fidelity Management & Research Company (FMR) perceives as having significant growth prospects. FCPGX invests in both U.S. and non-U.S. companies.

FCPGX has a Zacks Mutual Fund Rank #2. FCPGX has one-year annualized returns of 30.2%, and an expense ratio of 1.09% compared with the category average of 1.41%.

Vanguard Explorer Investor VEXPX normally invests its assets in common stocks of small and mid-cap companies, which are expected to have strong growth prospects. The fund generally offer very little or no dividend income.

VEXPX has a Zacks Mutual Fund Rank #1. It has one-year annualized returns of 23.5%, and an expense ratio of 0.44% compared with the category average of 1.41%.

Bridgeway Small-Cap Growth Fund BRSGX maintains a diversified portfolio by investing a large share of its assets in small-cap companies, having impressive growth prospects. BRSGX invests in companies that are listed on the NYSE, NYSE MKT and NASDAQ.

BRSGX has a Zacks Mutual Fund Rank #1. BRSGX has one-year annualized returns of 21.9%, and an expense ratio of 0.94% compared with the category average of 1.41%.

JPMorgan Dynamic Small Cap Growth A VSCOX seeks appreciation of capital for the long run. VSCOX invests a bulk of its assets in equity securities of small-cap companies that either have market-cap similar to those included in the Russell 2000 Growth index or have market-cap lower than $4 billion.

VSCOX has a Zacks Mutual Fund Rank #2. VSCOX has one-year annualized returns of 35.5%, and an expense ratio of 1.30% compared with the category average of 1.41%.

Goldman Sachs Small Cap Growth Insights Investor GSTOX maintains a diversified portfolio by investing primarily in equity securities of companies whose market-cap is similar to those in the Russell 2000 index. The fund may also invest in fixed income securities believed to be cash equivalents.

GSTOX has a Zacks Mutual Fund Rank #1. GSTOX has one-year annualized returns of 25.7%, and an expense ratio of 0.98% compared with the category average of 1.41%.

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