Three All-Weather Small-Growth Funds
In this sometimes dodgy category, stability is a real plus.
The cliché that every cloud has a silver lining is of cold comfort when the stock market drops, but it's true. For it's mainly in downturns that investors can actually see how well a fund plays defense. Most managers will say that they use "risk controls," but clearly some funds hold up better in tough times than others.
Of the nine domestic, style-box-based equity categories, the one most prone to sharp, quick losses is the small-growth group. Given that small caps tend to be more volatile than large caps and that dropping valuations hit growth funds harder than value funds, this behavior makes sense intuitively. And as if to prove the point, the small-growth category has fallen harder this year than the eight other diversified U.S. categories: Through May 19, 2005, the average small-growth fund has fallen 6%.
It wasn't so long ago, however, that small-growth funds were performing quite nicely. On average, these funds gained 12% in 2004 and 45% in 2003. When the economy is growing and the market's moving upward with that growth, small-growth funds have tremendous potential for heady gains.
Todd Trubey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.