4 Top-Performing Small-Growth Funds

Investing in small-cap stocks can offer the opportunity to find companies early in their growth, albeit with potentially more risk. For investors interested in this market segment, these are the four funds most recommended by Morningstar analysts. We looked for those with the best returns over the last one-, three-, and five-year periods. All names that passed the screen were actively managed.

• Federated Hermes MDT Small Cap Growth Fund QLSGX
• Fidelity Small Cap Growth K6 Fund FOCSX
• Harbor Small Cap Growth Fund HNSGX
• Invesco Discovery Fund ODIIX

Over the past 12 months, the average fund in the small-growth category returned 9.63%. On an annualized basis, small-growth funds have returned 12.28% over the last three years and 2.71% over the last five. Meanwhile, the Morningstar US Market Index, which rose 14.87% over the past 12 months, delivered annualized gains of 20.86% per year over the past three years and 13.06% over the past five.

Small-growth portfolios focus on faster-growing companies whose shares are at the lower end of the market capitalization range. These portfolios tend to favor companies in up-and-coming industries or young firms in their early growth stages. Because these businesses are fast-growing and often richly valued, their stocks tend to be volatile. Stocks in the bottom 10% of the capitalization of the US equity market are defined as small-cap. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields).

Screening for the Top-Performing Small-Growth Funds

We looked at returns from the past one, three, and five years using Morningstar Direct. We screened for open-end and exchange-traded funds in the top 33% of the category using their lowest-cost primary share classes for those periods. We also filtered for funds with a Morningstar Medalist Rating of Bronze, Silver, or Gold. We excluded funds with assets under $100 million and analyst coverage that was not 100%. This left four investments.

Because the screen was created with the lowest-cost share class for each fund, some may be listed with share classes that are not accessible to individual investors outside of retirement plans, or they may be aimed at institutional investors and require large minimum investments. The individual investor versions of those funds may carry higher fees, reducing returns to shareholders. Medalist Ratings may differ among the share classes of a fund.

Federated Hermes MDT Small Cap Growth Fund

• Morningstar Medalist Rating: Bronze
• Morningstar Rating: ★★★★

The $659.5 million fund has gained 20.18% over the past 12 months, while the average fund in its category is up 9.63%. The Federated Hermes fund, launched in June 2016, has climbed 15.92% over the past three years and 6.17% over the past five.

This strategy’s quantitative process aims to tap diverse alpha sources in a single approach. Its model assesses stocks on a multitude of various combinations of 16 factors. The factors generally incorporate metrics of valuation, quality, and technicals, with examples such as earnings/price trend, earnings repeatability, and five-year return. The firm’s research suggests that while individual factors aren’t especially predictive on their own, they grow much more effective combined with other factors. A random forest model tests thousands of potential factor combinations based on 30-plus years of US stock data and adjusts to the market environment.

Results have been noticeably better since the model’s introduction in 2013, improving upon its less flexible initial design with different avenues to produce outperformance. For example, the process will pick more aggressive, fast-growing stocks that have strong momentum as well as more value-oriented ones with beaten-down prices and low momentum, and it will adjust allocations to different company types with changes in the market environment. The managers continually improve the models through updates twice a year.

Experienced and thoughtful lead manager Dan Mahr took the helm here in August 2008. He and Frederick Konopka, who handles portfolio construction and trading, have spent their entire careers of 23 and 28 years at MDT, respectively, becoming managers in 2008 when MDT founder David Goldsmith retired. A decent team backs them, but higher-than-usual team turnover has dented its experience.

Since moving to the random forest approach, the mutual fund’s institutional shares have easily outpaced their Russell 2000 Growth Index benchmark and typical small-growth Morningstar Category peer, on both total return and risk-adjusted bases. The model will lean on the momentum factor at times, which can make performance bumpy, but over longer periods outperformance has been fairly consistent: It has topped its benchmark in about 70% of rolling three-year periods and in 90% of rolling five-year periods. At the right price, this is a decent option for small-growth investors.

Fidelity Small Cap Growth K6 Fund

• Morningstar Medalist Rating: Silver
• Morningstar Rating: ★★★★

The $3.8 billion fund has gained 13.59% over the past 12 months, while the average fund in its category is up 9.63%. The Fidelity fund, launched in May 2017, has climbed 17.04% over the past three years and 6.25% over the past five.

The strategy benefits from an experienced lead manager with ample support. Patrick Venanzi began his career at Fidelity in 2000 as a small- and mid-cap analyst where he covered consequential sectors like technology, healthcare, and financials; he took over this strategy in 2011. Fidelity’s deep analyst resources provide great support, which includes the firm’s seven-person small-cap analyst team and Fidelity’s sizable core analyst team, along with several dedicated biotech analysts. Additionally, former small-cap analyst Slava Kruzement-Prykhodko became a comanager on this strategy in September 2023, adding further to a level of support few other small-cap managers have.

The strategy uses a balanced and effective approach to small-cap growth investing. Venanzi allocates about 75% of portfolio assets to stable growth businesses and about 25% to younger, faster-growing ones, which can be less profitable and have more uncertain futures. Anchoring the portfolio in established, high-quality businesses mitigates the risks associated with owning more nascent, lower-quality ones while allowing for success in a wider range of market environments, not just when the highest-quality businesses lead the way. Close attention to valuation and adjusting position sizes accordingly also help keep risks in check.

Long-term performance was excellent. From Venanzi’s 2011 start through July 2025, the strategy’s 13.2% annualized gain beat the Russell 2000 Growth Index by nearly 3 percentage points and landed in the small-growth Morningstar Category’s top decile thanks to strong stock-picking across sectors and consistent downside protection. Results in the trailing year through July 2025 essentially matched the index and average peer owing largely to a slower rebound off the index’s recent bottom in April 2025, which is typical for the approach thanks to its tilt to steady, stable businesses.

Overall, this is a worthy small-growth option, though it closed to new investors and some current investors in October 2024 as assets approached $11 billion.

Harbor Small Cap Growth Fund

• Morningstar Medalist Rating: Bronze
• Morningstar Rating: ★★★

The $2.4 billion fund has gained 16.22% over the past 12 months, while the average fund in its category is up 9.63%. The Harbor fund, which launched in March 2016, has climbed 14.82% over the past three years and 5.39% over the past five.

This strategy’s longtime subadvisor, Westfield Capital Management, has a history of departures among senior investment team members. The trend continued in the last year with the departure of director of research Ethan Meyers and analyst Kevin Shin, who were at the firm for about 30 and 15 years, respectively. Both were on the firm’s investment committee. Since 2019, the team saw five additional departures that included three other investment committee members as well as two senior analysts who covered consumer and financial stocks. While this turnover isn’t ideal, the remaining 16 team members provide adequate depth, and the investment committee structure allows for collective decision making, so the strategy isn’t reliant on one person for success.

The strategy’s sensible growth-at-a-reasonable-price approach remains. The team looks for businesses with accelerating earnings and enough cash flow to fund growth while also minding valuations. Sector weightings stick close to the Russell 2000 Growth Index to let stock-picking lead the way. As a result, healthcare stocks consumed 29% of portfolio assets as of March 2025. Within the sector, the biotechnology stake stands out. Exposure to this volatile industry tracked the index in recent years even when it reached hefty double-digit stakes, which was much more than most small-growth peers owned.

Long-term performance was strong. From Westfield’s start as this fund’s sole subadvisor in November 2000 through May 2025, its institutional share class beat the average small-growth Morningstar Category peer and the Russell 2000 Growth Index by nearly 3 percentage points annualized, each. Consistent with the moderate growth approach, the strategy tended to keep up relatively well in rallies while providing solid downside protection in selloffs. Recent performance was no exception. In the year-to-date decline through May 2025, the strategy fell 1 percentage point less than the index and landed in the category’s top half.

Invesco Discovery Fund

• Morningstar Medalist Rating: Silver
• Morningstar Rating: ★★★★★

Over the past 12 months, the Invesco fund rose 20.29%, while the average fund in its category rose 9.63%. The fund, launched in January 2012, has climbed 20.07% over the past three years and 7.06% over the past five.

This fund has amassed an impressive record since lead manager Ron Zibelli and his team took over in 2006. Over the 10- and 15-year periods through May 31, 2025, the Y shares have handily beaten the Russell 2000 Growth Index and the small-growth Morningstar Category average by huge margins. It has performed well in a variety of market environments, and occasional rough stretches have never lasted long. For example, the fund’s painful 31.1% loss in 2022 was nearly 5 percentage points worse than the index’s. But after landing between the index and the category norm in 2023, it trounced both in 2024 and in the first five months of 2025. That’s particularly noteworthy because 2024 was a rally year, while 2025 thus far has sent returns into the red.

The people behind the fund instill confidence. Zibelli and comanager Ash Shah have worked together since 2002, along with Justin Livengood, who is Zibelli’s comanager on Invesco Discovery Mid Cap Growth. Two of the four other analysts have been with this team for roughly 20 years each.

The team has used a consistent strategy for many years, one that effectively balances growth with risk controls. Zibelli and Shah are willing to pay up for especially promising small-growth names, so that the fund’s average valuations tend to be higher than those of its peers. But the managers also prefer firms with solid business models and strong balance sheets, thus eliminating the most speculative growth names, and the team’s strict sell discipline has helped avoid major blowups. These factors help explain why its downside-capture ratio is milder than that of its average small-growth peer.

It’s worth keeping an eye on their workload. In addition to this strategy and Discovery Mid Cap Growth, Zibelli and team also manage large-cap strategies, and in early 2025 they were given control of the US portion of Invesco Global Opportunities as well. Thus far, though, they do not appear to be overburdened.