3 Small Cap International Growth Funds Surging Higher - Best of Funds


Despite the worries over Fed tapering, U.S. markets have gained appreciably this year. Investor confidence has returned to domestic markets on the back of encouraging data from the housing and employment sectors. This is more than evident from the fact that the S&P 500, the broadest indicator of the financial markets, is up more than 19% year-to-date and has breached the 1,700 barrier.

Emerging Markets Move Lower

Most major emerging economies are having an extremely tough year. A lot of disappointing economic data has come out of China. Though a few encouraging reports have been released lately, such as a 7.2% growth in exports, economic conditions in the Asian giant continue to be a cause for concern.
The same is true for other economies like India. Fundamental weaknesses and the need for a new wave of reforms have placed several impediments on the growth stories of these countries. It may be some time now before these are overcome.

Domestic Large Caps versus Small Caps

With good reason, therefore, capital outflows from emerging economies have increased. Funds have been flowing back into domestic financial markets as developing countries lose their lustre.
However, many domestic large cap companies continue to have significant investments abroad. These multinational corporations still conduct a significant amount of their business abroad.
This is why domestic exposure can only be achieved through small cap investments. This is borne out by the fact that the Russell 2000 Index derives only 20% of its revenues from international exposure.

Resurgent Developed Markets

But the same logic may not hold when it comes to developed markets. Many of these economies are having a good year till now and their prospects look brighter. Japan and the Euro Zone have managed to overcome many of their recent challenges and are making a steady comeback.
GDP for the 17 countries which make up the Euro Zone has increased by 0.3% for the second quarter. This follows six successive quarters of falling growth. Meanwhile the European Central Bank continues to maintain interest rates at record low levels.

Meanwhile Japan's growth rate has exceeded forecasts, according to revised data for the second quarter. GDP growth for the April-June GDP growth has increased at an annualized rate of 3.8%, compared to initial estimates of 2.6%. This comes on the heels of a revised 4.1% increase in the preceding quarter.

Mutual Fund Picks

MainStay Epoch International Small Cap A (EPIPX)
Launched in August 2006, this fund has net assets amounting to $514 million. The fund focusses on investing in foreign companies primarily from mature economies. 68.54% of its stocks are from developed Europe and the United Kingdom. Japanese stocks make up 23.43% of its portfolio.
The mutual fund holds 138 securities in all. Its top 10 holdings make up 18.06% of its assets. Its top 3 holdings are Baratt Developments PLC, Ashtead Group PLC and ProSiebenSat.1 Media AG. The fund returned 6.94% over the last four weeks and has a Zacks Rank #1(Strong Buy).

AllianzGI International Small-Cap A (AOPAX)
This is a fund with a minimum initial investment requirement of $1,000 and was launched in April 2010. This fund focusses on investing in small cap companies located in at least eight different countries. 61.88% of its stocks are from developed Europe and the United Kingdom. Japanese stocks make up 26.97% of its portfolio.

This fund holds a total of 54 securities. Its top 10 holdings account for 20.32% of its assets. Its top three assets are Yoox Spa, Sartorius Stedim Biotech SA and Tadano Ltd. The fund returned 5.28% over the last four weeks and has a Zacks Rank #1(Strong Buy).

Fidelity International Small Cap (FISMX)
Launched in September 2002, this fund has a minimum initial requirement of $2,500. The fund invests focusses on investing in common stock of foreign small cap companies. 49.19% of its stocks are from developed Europe and the United Kingdom. Japanese stocks make up 31.97% of its portfolio.
The fund is widely diversified and has a total number of 347 assets. The asset it is most invested in is

Orix Corporation (IX) which makes up 2.19% of its assets. The next two, Pigeon Corporation and Kakaku.com Inc, together make up 3.64% of its assets. The fund returned 5.12% over the last four weeks and has a Zacks Rank #1(Strong Buy).
Small cap stocks from mature foreign economies seem to be a good choice at the moment. A resurgence in Japan and better times ahead in Europe mean that these mutual funds would make good additions to your portfolio.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Mutual Funds

Referenced Stocks: AOPAX , EPIPX , FISMX , IX



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