Shannon Yan: Investors looking for small-cap growth exposure should consider Bronze-rated AB Small Cap Growth and Bronze-rated Invesco Small Cap Growth. Both boast a compact team of five analysts and managers and have shown a willingness to cultivate the next-generation talent. But the funds' similarity stops there.
AB Small Cap Growth uses fundamental research to find stocks that can surprise Wall Street with better-than-expected earnings growth and a momentum model to determine when to buy them. It tolerates plenty of not-yet-profitable fare as long as the management team thinks there is steep runway for growth. Invesco Small Cap Growth, on the other hand, prefers profitable and established companies with low debt and underappreciated prospects. Therefore, Invesco Small Cap Growth has a greater quality tilt than the Russell 2000 Growth Index and AB Small Cap Growth, while AB Small Cap Growth looks pricier on a P/E basis than Invesco Small Cap Growth and the benchmark.
These different approaches have led to differences in performance. AB Small Cap Growth is more volatile, winning the most in strong market rallies. Whereas, Invesco Small Cap Growth’s quality leaning makes it a strong contender in market drawbacks. They are both strong options in their own rights, and we expect both to outperform over the long haul.