Small-cap growth funds are natural choices for investors with a high risk appetite when capital appreciation over the long term takes precedence over dividend payouts. These funds focus on realizing an appreciable amount of capital growth by investing in stocks that are projected to rise in value over the long term.

Meanwhile, small-cap funds are good choices for investors seeking diversification across different sectors and companies. Small-cap funds generally invest in companies having market cap lower than $2 billion. 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.

Below we share with you four top-ranked small-cap growth mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of small-cap growth funds.

Federated MDT Small Cap Growth A (QASGX – Free Report) seeks capital growth for the long run. QASGX invests mainly in the common stocks of domestic small-cap companies. The fund attains its investment strategy by investing in those companies that are listed in the Russell 2000 Growth Index. Federated MDT Small Cap Growth A has a one-year annualized return of 26.3%.

Frederick Konopka is one of the fund managers of QASGX since 2008.

Meridian Growth Legacy (MERDX – Free Report) invests primarily in small- and mid-cap companies, which are expected to provide above-average growth potentials in earnings and revenues. The fund may also invest around one-fourth of its assets in foreign companies, including those involved in emerging markets. Meridian Growth Legacy has a one-year annualized return of 25%.

MERDX has an expense ratio of 0.87% as compared to the category average of 1.28%.