Mutual funds that focus on fast-growing smaller companies offer the possibility of higher returns than well established mature stocks. They also are fraught with higher risk because economic slowdowns challenge their ability to survive.

Zacks Investment Research has a list of three top-rated mutual funds that invest in small-cap names.

“Small-cap funds generally invest in companies having a market cap lower than $2 billion,” according to a Zacks post on Seeking Alpha. “The companies, smaller in size, offer growth potential and their market capitalization may increase subsequently. Also, due to their less international exposure, small-cap funds offer higher protection than their large- and mid-cap counterparts against any global downturn.”

Zacks: 3 Small-Cap Funds Poised for Outperformance
 

1 . Northern Small Cap Core (NSGRX): “Northern Small Cap Core has a three-year annualized return of 8.1 percent.”

2. Putnam Small Cap Growth A (PNSAX): This fund “invests in common stocks of companies having a market capitalization within the range of the Russell 2000 Growth Index.”
 

3. Bridgeway Small-Cap Growth (BRSGX): This fund “uses statistical tools to identify small-cap growth companies for potential investment. Bridgeway Small-Cap Growth has a three-year annualized return of 9.7 percent.”

• Credit Suisse: Beware of 25 Stocks Everyone Already Owns
• Barclays: 16 Smaller Stocks to Weigh for Your Portfolio