6 Best Small-Cap Index Funds Of September 2024 (2024)

The Manning & Napier Rainier International Discovery fund mainly owns small-cap and mid-cap stocks traded outside the U.S. The fund is actively managed. RAIWX aims for sustainable growth from what it considers reasonably valued stocks at the time of purchase.

RAIWX bases investment decisions analysis of individual stocks’ fundamentals rather than on broad economic trends. RAIWX looks for stocks with strong growth and clear earnings drivers.

Smaller stocks typically lack the high dividend yields of their larger counterparts. The fund is heavily weighted to industrial stocks, making up about 30% of the portfolio, with about 15% each in consumer discretionary names and technology stocks.

Schwab’s Fundamental U.S. Small Company Index Fund tracks the Russell RAFI US Small Company Index. It overweights components that are undervalued and also have strong relative growth and solid dividends. As those stocks return to a fair valuation, investors should benefit from rising prices and capital growth. That also provides a slight value tilt for SFSNX’s portfolio.

SFSNX yearly average total return tops its Morningstar category’s over the past one, three, five, 10 and 15 years. The fund’s favorite sector consists of industrial stocks. Financials and consumer discretionary stocks come next. Investors seeking a reasonably priced small cap fund, with the possibility of outperforming the unmanaged index, should investigate SFSNX.

Vanguard’s Tax-Managed Small Cap Fund Admiral Shares have a $10,000 minimum investment requirement, making them cost prohibitive for some investors. However, if you’re in a higher tax bracket and looking for small-cap exposure in a taxable brokerage account, it’s worth checking out VTMSX.

The fund takes the S&P SmallCap 600 Index as its benchmark. The sector weightings match up with the benchmark index, favoring industrials at about 17% of the portfolio, followed by financial stocks, technology and and consumer cyclicals.

The Fidelity ZERO Extended Market Index Fund tracks the Fidelity U.S. Extended Investable Market Index. The zero expense ratio makes this fund among the most affordable paths to capturing returns from the small-cap sector of the U.S. stock market. To boost total returns, the fund also lends shares.

FZIPX’s portfolio is made up of companies that lean toward the value camp. Like its benchmark index, the portfolio’s top holdings include financial stocks, industrials, tech stocks, healthcare and consumer cyclical names. Mutual fund investors looking to tap the small cap market might appreciate this zero minimum and zero management fee fund.

Small-cap stocks as a group have outperformed large-caps since 1926. But large caps have ruled over the past 15 years. Are small caps due for a rebound?

Could be. Managers of Vanguard Russell 2000 Value Index Fund may be hedging their bets by allocating a portion of their portfolio to mid-cap stocks. Overall, VSIAX’s roughly 850 stocks sport a solid earnings growth rate. The fund has roughly 22% of its shareholders’ money at work in industrials and a little less in financials. Bargain hunting investors should check out VSIAX and its portfolio of lower valued stocks.

Vanguard’s Small Cap Growth Index Fund gives investors affordable access to the fastest growing small-cap companies in the U.S. Note that the average market capitalization of stocks in this portfolio is about $7 billion. That means its nearly 700 holdings stray into the mid-cap sphere. VSGAX’s projected average annual earnings growth rate for the next three to five years is about 15% vs. about 12% for its Morningstar category. That means VSGAX is poised to harvest superior earnings growth as the economy grows.

Nearly 30% of VSGAX’s portfolio is in the technology sector. Healthcare stocks and industrials are the second and third biggest groups. The outperformance of growth stocks in general versus value stocks in 2023 provides a tailwind for VSGAX. The portfolio’s overall valuation, measured by VSGAX’s price-earnings ratio, is slightly pricier than the broad market’s in the form of the S&P 500 Index.