10 Stock Picks From Small-Cap Specialist Royce Funds
For example, iPad and iPhone maker Apple(AAPL) is owned by almost 4,850 funds, including eight "small-cap" funds.
And with the S&P 500's gain of 11.3% this year, who wants to be left off that gravy train?
But it's clear that the large-cap benchmark is being driven mostly by Apple, which with its 50% gain this year and current $614 share price, makes up 4.6% of the index.
So as goes Apple, so goes the S&P 500, which should give many investors pause. "Some investors are angered by the 500's vulnerability to a Newtonian event: Apple falling to the ground, and the outsized impact that a declining stock price would have on the index," said Sam Stovall, S&P Capital IQ's chief equity strategist, in a market commentary.
But there's a whole other world of investing out there in small- and mid-cap stocks where investors can outdo many of the big guys while adding diversity to their portfolios.
The S&P Mid-Cap 400 Index is up 12% this year, while the small-cap bellwether Russell 2000 Index is up 9.8%. And, over the past three years, both indices have outperformed the S&P 500 by an average of 1 percentage point per year.
If you're shopping for small- and mid-cap stocks to diversify your portfolio, you'd be wise to start by looking at the portfolio of the small-cap stock fund specialist Royce Funds. Its motto is: "Small company investing is our core business."
Royce Funds, a family of 25 funds with $35 billion in assets under management, has an admirable track record. Its funds gained an average 11.9% in the first quarter and have a three-year average annual return of 27%.
Russel Kinnel, who writes the Fund Spy column for fund tracker Morningstar, noted recently that "71% of Royce's funds are rated 4 stars by Morningstar (out of a possible five). Now that's consistent!" Not to mention pretty good.
Its $3 billion small-cap blend fund, Royce Special Equity Fund (RYSEX) , gets a Morningstar "gold" rating, its highest, for its steady outperformance over its peers. The fund is up 9.2% this year and boasts a 10-year average annual return of 8.4%.
And in the mid-cap growth fund sector, its $7 billion Royce Premier Fund (RYPRX) also earned a gold from Morningstar. It's up 9.4% this year and over 10 years it has returned an average of 10.5% annually.
So Royce's stock picks are worth a look for potential small- and mid-cap stock investors as its analysts do a lot of research to come up with its portfolio of relative unknowns.