The top five holdings of our fund recommendation are: Kodiak Sciences Inc (KOD, 3.00%, of assets); Palomar Holdings Inc (PLMR, 2.54%); Renewable Energy Group Inc (REGI, 2.14%); Malibu Boats Inc Class A (MBUU, 1.86%); and Axcelis Technologies Inc (ACLS, 1.68%). Our second recommendation today is a sale of a previous idea.
Buy: First Trust Dow Jones Select MicroCap Index Fund (FDM)
From Upside
Especially with microcaps, avoiding likely losers is crucial. That is the premise behind our top pick among microcap funds, the First Trust Dow Jones Select Microcap exchange-traded fund.
The fund screens for actively traded microcap stocks, then eliminates those with the worst earnings growth, profit margins, price/sales and price/earnings ratios, and six-month returns. The fund, which has outperformed the Russell Microcap Index over the last five and 10 years, ranks among the top 2% of small-value funds based on 10-year returns.
The fund, with an 0.60% expense ratio, mirrors an index designed by Horizon Investment Services, a sister company of Horizon Publishing. Horizon Investment Services is compensated
for creating the index.
Richard J. Moroney, CFA, Upside, upsidestocks.com, 800-233-5922, June 1, 2020