Small-cap growth funds represent a potentially effective
way for those with retirement saving shortfalls and concerns about improving
portfolio growth to provide additional stock and sector diversification while
adding only moderate volatility, according to a white paper issued by
institutional asset management firm RidgeWorth Investments. The report, “The
Overlooked Potential of Small Cap Growth Funds: The importance of growth
investing in retirement plan portfolios,” makes the case for adding small-cap
growth funds as a relatively safe method for many Americans to catch up on
lagging retirement savings goals.
Report researchers pointed to recent figures released by
the U.S. Department of Labor (DOL) showing the average retiree will need as
much as 85% of preretirement income to sustain his or her current lifestyle.
According to the white paper, Americans have far too little saved to meet
those needs, and what savings they do have are allocated too conservatively to
make recovering the shortfall possible.
Chris Guinther, senior portfolio manager of the
RidgeWorth Small Cap Growth Stock Fund stressed that, despite high volatility
typically associated with small-cap growth funds, they have historically
offered the greatest capital appreciation over the long run. “Small-cap
companies tend to grow faster than their midsize and large counterparts
because they have more potential for rapid revenue and earnings growth due to
innovative products and services,” Guinther said. “The inclusion of
small-cap equity in a retirement portfolio may provide more opportunity to
capture the upside of the equity markets, especially when those investors stick
with a consistent allocation over time.”
Guinther’s recommendations are supported by recent market
activity. Over the past few years, money has flowed toward dividend-oriented
value stocks and away from small caps, but, during the first half of this year, the
small-cap sector experienced stronger inflows, suggesting a return to a longer-term trend favoring this asset class.
A copy of the white
paper is available here.