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,” . . .

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