Newsletter Watch: Best bets among small cap funds and ETFs
Jim Lowell, editor of The Fidelity Investor and Fidelity Sector Investor, has long been known as the advisory world’s leading independent authority on the Fidelity family of funds. In recent years, he has expanding this role to include other fund families as well as exchange-traded funds covered in his Forbes ETF Advisor.
Below, we examine his general outlook for the small-cap sector, his favorite small-cap funds within the Fidelity family and his review of the top five small-cap ETFs.
“For the past three years, small- and mid-cap stocks have been told their numbers were up; that they’d come too far from the low water mark of the most recent 2002 bear market trough to make a sustainable run,” Lowell says. “While those who were making this claim three years ago are looking as if they’ve been justified by the past three months worth of activity, the performance reality is that all capitalization ranges faltered at the altar of this recession.”
He says it’s true that small- and mid-caps lost a bit more than the so-called “safe haven large-cap brethren,” and over the next three months they may follow a similar pattern, but “over the next 12 months, and certainly for years to come, most investors (especially growth-oriented ones) can benefit from holding meaningful stakes in both camps.”
The advisor says that these benefits are especially true if one holds their small- and mid-cap stakes as part of a broader asset allocation position that also includes diversification, both globally and by capitalization.
“Small- and mid-cap companies offer benefits beyond the prospect for faster earnings growth rates,” Lowell says. “They’re often companies with a consumer base no more than a stone’s throw from their service or registers. Innovation is part of their élan.”
He adds that when selecting small-cap funds, he personally favors managers who focus on “real products, proven management and established revenue,” as well as a measurable and growing market share.
He also prefers managers who focus on companies that have an established consumer base (either domestic or global), as well as companies that offer the premium of either “being acquired or being smartly accretive in their own roll-up designs.”
Is now a good time to consider small- and mid-cap funds? According to Lowell, “it’s always a good time to consider them.”
His favorite picks, which not surprisingly are the funds that appear within his model portfolio, are Fidelity Low-Priced Stock (FLPSX), which he considers a more defensive fund, as it holds mid- and large-cap names along with its small-cap positions, and Growth Discovery (FGDKX), which he considers more aggressive, but “helps balance our a middle ground.”
“Our purest small-cap play,” he says, is Fidelity International Small Cap Opportunities (FSCOX). “Hardly a shrinking violet, this fund is on one of the more volatile fields of the established foreign markets and can as easily stumble more than most in any 12-month time period as it can soar above them.”
Meanwhile, in his latest The Forbes ETF Advisor, Lowell reviews the five top-ranked small-cap exchange-traded funds, otherwise known by him as the “leaders in the small-cap ring.”
1) DJ Wilshire Small-Cap Growth (ASE:DSG):
This fund seeks investment results that correspond to the price and yield performance of the DJ Wilshire Small Cap Growth Index. Lowell says that the largest three sectors are information technology (24.3%), health care (17.4%) and industrials (16.7%).
2) Vanguard Small-Cap Growth VIPERs (ASE:VBK):
This fund, according to Lowell, benchmarks to the MSCI US Small Cap Growth Index. The largest three sectors are information technology (23.4%), health care (18.1%) and industrials (16.8%).
3) iShares S&P Small-Cap 600 Growth (ASE:IJT):
This fund, says Lowell, seeks investment results that correspond to the price and yield performance of the S&P SmallCap 600 /Citigroup Growth Index. The largest three sectors are information technology (22.5%), health care (16.8%) and consumer discretionary (16.6%).
4) StreetTRACKS DJ Wilshire Small-Cap Value (NYSE:DSV):
Lowell says the largest three sectors are financials (35.9%), industrials (14.4%) and consumer discretionary (13%).
5) Vanguard Small-Cap VIPERs (ASE:VB):
Lowell says this fund seeks investment results that correspond to the price and yield performance of the MSCI US Small Cap 1750 Index. The largest three sectors are financials (18.5%), industrials (16.3%) and information technology (16.2%).
Steven Halpern has just compiled a 35-page report on alternative energy, featuring the favorite solar, wind, nuclear, coal and natural gas stocks from the nation's leading financial newsletter advisors. The report is available for free to all Small Cap Newsletter readers.
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As a newsletter editor and financial journalist, Steven Halpern has covered the investment newsletter industry for 25 years.
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