Since the financial crisis began, large-cap growth has been one of the most unloved fund categories. Of the $180 billion that investors have pulled from stock funds since January 2008, $83 billion has come from large-cap growth funds, according to Morningstar.
That's mainly because the category's performance has been poor. Over the past decade, the average fund in the category has lost about 1 percent. Compare that with the S&P 500, which has returned about 0.5 percent over the same time period, and the average large value fund, which is up 3 percent. Ironically, the dismal performance of large-cap growth funds is good news for the category now, says Morningstar analyst Christopher Davis. "When investors hate something, that's the time things really start to improve," he says.
Funds in this category invest in fast-growing companies, often in sectors like technology or healthcare. "A growth company could range from Coca-Cola to a small, speculative biotech stock," Davis says. Large-cap growth funds are a bit more volatile than large-cap value funds, because they invest in high-growth companies with higher valuations that may experience sharp swings in their share prices. "They have higher expectations embedded in them, so when growth companies disappoint the fall from grace tends to be more severe," Davis says.
With that in mind, here are U.S. News's best large-cap growth funds for the long term:
Jensen Portfolio (symbol JENSX).
The managers at Jensen run strict screens to find a handful of stocks they feel strongly about. One requirement is that companies in the portfolio produce at least a 15 percent return on equity in each of the past 10 years. The fund typically holds about 30 companies. It's currently heavily weighted in the healthcare sector, and its largest holding is currently Abbot Laboratories. Unlike many of its peers, the fund has an extremely low turnover ratio, holding the average stock for about 8 years. Over the past 10 years, the fund has returned an annualized 2 percent. Its annual fees are 0.92 percent.
Franklin Growth (FKGRX).
Morningstar says this fund is "buy-and-hold at its best." It has a low turnover ratio of 4 percent, meaning it holds companies, on average, for more than 20 years. Management buys mostly large-cap U.S. stocks, but it will consider smaller companies as well as international stocks, the latter of which currently make up 7 percent of the fund's total assets. The fund's largest holding, Apple, accounts for 6 percent of assets. Management is also heavily invested in industrial materials companies like 3M and Boeing. Over the past 10 years, the fund has returned an annualized 2 percent. Its annual fees are 1 percent.
Lou Holland Growth (LHGFX).
Fund manager Monica Walker pays plenty of attention to valuations and a company's ability to generate double-digit earnings growth. On average, the fund holds about 50 stocks for a period of about three to five years. Currently, it is overweight in the energy industry, with large holdings in ExxonMobil and Occidental Petroleum. Apple is the fund's largest holding, which accounts for 5 percent of its total assets. The fund has returned an annualized 10 percent over the past 10 years. Its annual fees are 1.35 percent.
Vanguard Capital Opportunity (VHCOX).
The fund's managers, who also run Primecap Odyssey Growth (POGRX) and Primecap Odyssey Stock (POSKX), seek stocks that are poised for growth but are temporarily undervalued. The fund, which has been closed to new investors since 2006, has returned an annualized 4 percent over the past decade. It comes with annual fees of 0.41 percent.
Prudential Jennison 20/20 Focus (PTWAX).
The fund's co-managers run separate value and growth portfolios. The managers pick about 20 stocks for each portfolio--hence the 20/20 in the name. At times, the fund can be volatile. It had a poor showing in 2008, losing more than 40 percent, but it rebounded in 2009 with a 60 percent gain. Management is fairly diversified across a number of different sectors. Some of its largest holdings include Novartis, Apple, and Amazon. Over the past 10 years, the fund has returned an annualized 5 percent. Its annual fees are 1.20 percent.
Fidelity Contrafund (FCNTX).
Manager Will Danoff has been forced to change the fund's investing style over the years because of its bloated asset size. With more than $70 billion of assets under management, it has become more difficult for Danoff to invest in small- and mid-cap companies. The fund was closed for a bit during the middle of the decade, and reopened to investors in 2008. Since then, Danoff had added a diverse group of names, both in the U.S. and abroad, to his portfolio of more than 400 stocks. They include steadier companies like Coca-Cola, and rapidly growing companies like Apple and Google. Since Danoff took the helm in September 1990, the fund has returned an annualized 13 percent, compared with 9 percent for the S&P 500, according to Morningstar. Its annual fees are 1.01 percent.
FMI Provident Trust Strategy (FMIRX).
This fund's strategy is rather aggressive. It currently holds just 16 U.S. stocks, and one Indian technology company, Infosys. The fund's domestic holdings are tilted heavily toward technology companies, like Oracle. It also holds six bonds (a mix of treasuries and corporates) that account for 10 percent of total assets. At times, the fund's concentrated portfolio can give investors a wild ride. Over the past 10 years, the fund has returned an annualized 3 percent. Its annual fees are 1 percent.
Madison Mosaic Investors (MINVX).
Manager Jay Sekelsky runs a concentrated portfolio of about 30 to 40 stocks, and looks for stability and growth over cheap valuation. The fund's holdings are fairly diverse, and it has large positions in Microsoft and IBM as well as Chevron and oil services company Schlumberger. On average, the fund will hold stocks for about a year and a half. It has returned an annualized 2 percent over the past 10 years. Its annual fees are 1 percent.
Buffalo Large Cap (BUFEX).
Management fills out its compact roster of stocks by first screening them through a complicated list of 25 trends, many of which involve consumption and demographic information, then controlling for cheaper valuations. Then, the fund's three co-managers look for consensus based on their trust in company management and growth forecasts. The fund's portfolio typically contains about 30 stocks. Management is currently overweight in technology and healthcare, with Merck and Intel among its largest holdings. The fund has returned a just under 1 percent annualized over the past 10 years. Its annual fees are 1.08 percent.
American Funds AMCAP (AMCPX).
Of the funds listed here, AMCPX is most heavily invested in mid- and small-cap companies. The average market capitalization of the stocks that it holds is $22 million, which places the fund in the lowest third of its peers, according to Morningstar. Recently, its exposure to smaller companies has helped it outperform the S&P 500. Some of the fund's largest holdings include Google and Microsoft. Over the past 10 years, the fund has returned an annualized 3 percent. Its annual fees are 0.78 percent.
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