Kiplinger’s Personal Finance — September 2017

63

Cashing In on Fast-

Growing Small Caps

This fund’s goal: Invest in firms that can

generate annual earnings gains of at least 15%.

IF YOU HAD BEEN PRESCIENT
enough to invest in Amazon
.com when it went public 20
years ago and was still just
an online bookseller, your
investment today would be
worth 500 times more. You
probably didn’t, but you can
console yourself with the
knowledge that for every up-
start that goes on to conquer
the world, many more fizzle
out. That makes small, fast-
growing firms especially
well suited for funds.
In recent years, few have
done a better job navigating
these treacherous waters
than HOOD RIVER SMALL-CAP
GROWTH. The fund has out-
paced the small-company
Russell 2000 Growth index
in each of the past six cal-
endar years (including the
first half of 2017). And over
the past five years, it hand-
ily beat the large-company-
oriented Standard & Poor’s
500-stock index.
In charge of Small-Cap
Growth are Robert Marvin
and Brian Smoluch, who
have been with the fund
since its 2003 launch, and
David Swank, a comanager
since 2009. Focusing on
stocks with market values
of less than $4 billion, they
seek companies they believe
will boost earnings per
share by 15% annually over
the next three to five years.

FUND SPOTLIGHT

After identifying these

potential winners, the man-

agers talk with executives,

suppliers, customers and

competitors to identify high-

quality companies that Wall

Street analysts are underes-

timating. If analysts expect

a firm to earn, say, $1 per

share, that projection is al-

ready ref lected in the price

of the stock, says Smoluch.

“We’ll invest if we think it

will be $1.50,” he says. Aid-

ing the trio is what they call

a “research gap”—the grow-

ing tendency of Wall Street

firms to focus on large con-

cerns, which makes it easier

for diligent managers to

uncover attractive small-

company stocks.

Take Red Robin Gourmet

Burgers. Hood River, which

had previously owned and

sold shares in the restaurant

chain, repurchased the

stock early this year after

the firm brought in new

leadership from fellow res-

taurant operator Brinker

International. Those execs,

says Marvin, helped boost

Brinker’s profit margins

sharply, and they could well

do the same for Red Robin.

Analysts weren’t baking the

improved outlook into their

earnings estimates, so the

fund snapped up the stock.

Since then, the shares have

surged by 23%. RYAN ERMEY

Rank/Name Symbol 1 yr. 5 yrs.

Assets†

(billions)

Max.

sales

charge

Annualized

total return

1.Vanguard Total Stock Market Idx Inv VTSMX$501.0 18.4% 14.4% none

2.Vanguard Total Intl Stock Idx Inv VGTSX 274.9 20.0 7.6 none

3.Vanguard 500 Index Inv VFINX 259.1 17.7 14.5 none

4.American Growth Fund of America A AGTHX 162.3 21.5 15.6 5.75%

5.American EuroPacific Growth A AEPGX 143.5 21.8 9.2 5.75

6.Fidelity 500 Index Inv FUSEX 119.9 17.8 14.5 none

7.Fidelity Contrafund FCNTX 113.8 22.2 14.6 none

8.American Balanced A ABALX 111.9 10.4 10.6 5.75

9.American Income Fund of America A AMECX 106.4 9.6 9.4 5.75

10.American Capital Income Builder A CAIBX 105.1 7.9 7. 7 5. 7 5

11.Vanguard Wellington‡ VWELX 100.1 12.2 10.4 none

12.American Washington Mutual A AWSHX 91.7 15.1 13.3 5.75

13.American Capital World Gro & Inc A CWGIX 90.7 18.4 11.2 5.75

14.American Fundamental Inv A ANCFX 87.3 19.1 14.8 5.75

15.American Invstmt Co of America A AIVSX 84.9 15.7 14.1 5.75

16.Franklin Income A FKINX 83.0 13.1 7.2 4.25

17.American New Perspective A ANWPX 69.0 21.2 12.7 5.75

18.Vanguard Mid Cap Index Inv VIMSX 67.2 17.1 14.6 none

19.Dodge & Cox Stock@ DODGX 65.4 28.7 16.4 none

20.Dodge & Cox International Stock@** DODFX 61.5 30.4 10.2 none

S&P 500-STOCK INDEX 17.9% 14.6%

MSCI EAFE INDEX 20.3% 8.7%

RETURNS FOR

THOUSANDS OF

FUNDS ONLINE

Use our Mutual Fund Finder

to get the latest data and see

the top performers over one-,

three- and five-year periods.

Research a specific fund, or

compare multiple funds based

on style, performance and

cost. And view details including

volatility rank and turnover

rate. To use this tool, go to

kiplinger.com/tools/fundfinder.

Kiplinger.com

Through June 30. @Only share class. Unless otherwise indicated, funds come in multiple share

classes; we list the share class that is best suited for individual investors. †For all mutual fund

share classes. ‡Open to new investors if purchased directly through Vanguard. **Closed to

new investors. rMaximum redemption fee. sFront-end load; redemption fee may apply. MSCI

EAFE tracks stocks in developed foreign markets. SOURCES: Morningstar Inc., Vanguard.

20 LARGEST STOCK MUTUAL FUNDS Ranked by size

5 yrs.

SMALL-COMPANY GROWTH FUNDS Ranked by 1-year returns

Rank/Name Symbol 1 yr.

Max.

sales

charge

Annualized

total return

1.Baron Discovery Retail BDFFX 43.4% —none1.35%

2.B. Riley Diversified Equity A BRDAX 36.7 —5.75%1.50

3.JPMorgan Dynamic Small Cap Gr A VSCOX 35.0 14.6% 5.25 1.25

4.Hood River Small-Cap Growth Inv HRSRX 34.7 17.7 1.00r 1.34

5.JPMorgan Small Cap Growth A PGSGX 34.4 14.7 5.25 1.25

6.Highland Small-Cap A HSZAX 34.3 15.3 5.75 1.40

7.Oberweis Micro-Cap OBMCX 34.2 18.7 1.00r 1.64

8.Victory RS Small Cap Equity A GPSCX 34.0 15.5 5.75 1.35

9.ICON Opportunities@ ICONX 33.7 — none 1.51

10.Buffalo Emerging Opportunities@ BUFOX 33.7 13.8 none 1.48

CATEGORY AVERAGE 23.2% 12.8%

Exp.

ratio

EXPLANATION OF TERMS

Annualized total return assumes

reinvestment of all dividends and

capital gains; returns reflect ongoing

expenses but not sales charges.

Maximum sales charge A figure

without a footnote means the com-

mission is deducted from the money

you send to the fund. A figure with

an r is the maximum redemption

fee charged when you sell shares.

Funds that charge both sales and

redemption fees are footnoted with

an s next to the front-end load.

Expense ratio is the percentage

of assets claimed annually for

operating a fund.