For U.S. mutual fund investors, this is shaping up to be a year when it pays to go small. Not with small-company stock funds. No, tiny mutual funds with less than $100 million in assets under management are either leading or are among the top three or four best performers in every major U.S. stock category tracked by Morningstar for the year, through June 10. How come? The outperformance of these tiny funds run by managers that few investors have ever heard of likely reflects the fact that, as passive investing in index and exchange-traded funds becomes increasingly popular, fund managers with small portfolios are swinging for the fences by taking concentrated bets on only a handful of stocks in order to stand out. When all goes well, that can lead to strong outperformance even after a small fund’s higher-than-average fees; when it does not, those funds are likely to fall among the worst-performers. At the same time, stock pickers tend to reap the biggest rewards in the later stages of a bull market, when rallies are less broad. Each of the small funds leading their categories this year have 30 or fewer stocks in their portfolio. The $25 million Biondo Focus fund, for instance, has gained 9.8% for the year with its portfolio of 19 stocks, trailing only two other funds among the 1,743 in the Morningstar large-cap growth category. Its top holdings include a 14% stake in J.P. Morgan Chase JP MORGAN CHASE & CO. JPM -0.33% , 12% in Pacira Pharmaceuticals PACIRA PHARMACEUTICALS INC PCRX 0.69% , and 10.3% in Gilead Sciences GILEAD SCIENCES INC. GILD -0.65% . By comparison, Fidelity’s $107.5 billion Contrafund, a mainstay of retirement accounts, holds no more than 4.5% in any one of its 298 holdings. The fund is up 3.4% for the year, putting it in the 57th percentile of the large growth category. Over the last three years, however, Contrafund has returned an average of 17.1% a year, while the Biondo fund has gained an average of 13.5% over the same time frame. “When you are running a concentrated fund, you are taking greater risk opportunity for greater reward. If you pick the right stocks your winners are going to shine,” said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ. Picking only a handful of stocks tends to work better in the U.S. than in the emerging markets or Europe, Rosenbluth added, where a fund manager has to be right on not only a company, but on the performance of countries as well. Internationally, large funds by giants like Fidelity and T. Rowe Price Group Inc are leading the pack in categories ranging from emerging market stocks to European equities. The managers of small funds, for their part, cite some advantages to their size. Brian Boyle, the lead portfolio manager of the $21 million Valley Forge Fund, whose 19.9% gain for the year leads all other large value funds, said he can be more nimble than the other 1,290 competitors in his category. He has been able to build up nearly 10% of his portfolio in oil and gas company Birchcliff Energy BIR 0% even when just 5,000 shares of its stock change hands each day on average, he said, a position that a larger fund could not do without becoming a significant owner of the shares. Birchcliff shares are up 91% for the year. “At some point there could be a constraint in terms of fund size, but we’re nowhere near it,” he said.