The latest employment report showed the U.S. economy added 142,000 jobs in the month of August, falling short of the projected 228,000 figure. Furthermore, this data release is the first one to come in below the 200,000 mark since January of this year.

Digging deeper, it appears that the slowdown in hiring was largely attributed to a decline in jobs in the retail and auto sectors, which shed 8,000 and 5,000 jobs respectively. Sectors that saw an increase in payrolls were health care, construction, and restaurants.

The unemployment rate ticked lower from 6.2% previously to 6.1%. While this would otherwise be seen as a positive if coupled with a strong payrolls gain, it’s evident that this metric inched lower because the labor force participation rate itself dropped; in other words, the unemployment rate decreased because more Americans dropped out of the labor force.

Lastly, average hourly wages increased by 0.2%, bringing their one-year growth rate up to 2.1%.

The table below highlights some of the biggest and best performing mutual funds that offer exposure to domestic small cap stocks.

Small Cap indexes are broadly trading lower following the August jobs report. The well-known Russell 2000 Index is down 0.31% at the time of writing, while its large-cap counterpart, the S&P 500 Index, is down 0.25%.

In the current environment, this asset class is regarded as a better gauge for hiring activity on the home front since smaller companies are more hesitant to expand operations and reinvest profits; large cap companies on the other hand are mature and more concerned about profit margins than growth, which why they are still considered to be in “doing more with less” mode.

As such, given the strong link between the health of the domestic economy and smaller size companies, we’re watching this asset class and related funds to get a better sense of the pace of the labor market recovery.

Small cap stocks are generally riskier than their large cap counterparts for a number of reasons, the key ones being the difference in scale of operations, greater sensitivity to local conditions, as well as their ability to procure financing when needed.

On the other hand, this asset class stands to offer more lucrative growth potential since these companies have yet to saturate their respective markets. Small caps should make up a portion of your overall portfolio, depending on your risk tolerance, given their ability to improve risk-adjusted returns over a long-term investment horizon.