Which Small-Cap Fund to Buy: FSSAX or PNSAX?

Small-capitalization companies are in the limelight recently, given the government’s many economic measures to boost small business across the country. These businesses have been hit hard since the past few weeks after a stringent lockdown was imposed on the United States, confining millions to their homes.

Small business units, such as restaurants, bars, diners and bakeries have been severely impacted since the shutdown. Now that the lockdown period is extended through Apr 30, the economic blow to these business centers will only be more damaging. This is the reason why the Congress’ next stimulus bill is so crucial.

The new package will offer more than $1 trillion, confirmed by House Speaker Nancy Pelosi to Democrats on a private conference call, per a Bloomberg report. This relief grant will focus on restocking the funds for programs enlisted under the Congress’ $2.2 trillion coronavirus relief bill that was signed into law in March.

According to Pelosi, the bill is meant to aid state and local governments with more focus on smaller municipalities (fewer than 500,000 residents), cited by a lawmaker. Pelosi wants the bill passed this month. President Donald Trump had last week said that he’ll ask Congress to allot more money to small business loans should the already designated $349 billion fund for the program gets exhausted. The president wants deepen focus on direct payments to the citizens.

The Congress had approved a $350-billion bailout package for small business loan program as part of the bigger $2-trillion stimulus package sanctioned last month.

This is why investing in mutual funds that invest in small-capitalization companies is an ideal move right now. Let us compare FSSAX and PNSAX, two well-ranked funds from this space and find out which is the best fund for investment purposes. The former sports a Zacks Mutual Fund Rank #1 (Strong Buy) while the latter carries a Zacks Mutual Fund Rank #2 (Buy).

Franklin Small Cap Growth Fund Advisor Class FSSAX

The fund aims for long-term capital appreciation. The fund invests the majority of its assets in securities of small-capitalization companies. The fund considers small-cap companies as those whose market capitalization is within $1.5 billion or has the highest market capitalization in the Russell 2000 Index, whoever is higher at the time of purchase.

This Sector-Small Cap Growth product has a history of positive total returns for over 10 years. Specifically, the fund’s returns are 11.9% over the 3-year and 7.8% of the 5-year period. To see how this fund performed compared in its category, and other #1 and #2 Ranked Mutual Funds, please click here. 

The Franklin Small Cap Growth Fund Advisor Class, as of the last filing, allocates its assets in top two major groups —Small Growth and Large Growth. Further, as of the last filing, Alteryx Inc Class A, PTC Therapeutics Inc and Draftkings Inc were the top holdings for FSSAX.

FSSAX was incepted in May 2000 and is managed by Franklin Advisers, Inc. The fund carries an expense ratio of 0.82% and requires a minimal initial investment of $0.

Putnam Small Cap Growth Fund Class A PNSAX seeks capital growth. The fund invests the majority of its assets in securities of small-capitalization companies that focus on growth stocks. The fund considers small-capitalization companies as those whose market capitalization is similar to the constituents of the Russell 2000 Growth Index.

This Sector -Small Cap Growth product has a history of positive total returns for over 10 years. Specifically, the fund’s returns are 14.4% over the 3-year and 9.8% of the 5-year period. To see how this fund performed compared in its category, and other #1 and #2 Ranked Mutual Funds, please click here. 

The Putnam Small Cap Growth Fund Class A, as of the last filing, allocates its assets in top two major groups —Small Growth and Large Growth. Further, as of the last filing, Five Below Inc, Cable One Inc and Planet Fitness Inc A were the top holdings for PNSAX.

PNSAX was incepted in December 1997 and is managed by Putnam Investment Management, LLC. The fund carries an expense ratio of 1.20% and requires a minimal initial investment of $500.

To Conclude

Upon taking a closer look at FSSAXand PNSAX, we find that the former clearly beats the latter in terms of minimal initial investment and a lower expense ratio. Despite the marginally higher returns and lower risk associated with it (FSSAX has a beta of 1.30 while PNSAX has a beta of 1.11), PNSAX’s administrative and other operating expenses are much higher than that of FSSAX. In addition, the higher minimal initial investment of PNSAX also offers less flexibility.

Want key mutual fund info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>

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