Growth-Fund Managers Take Different Tack

Growth funds had a clear mission a year ago: buying stocks with growing earnings.

But these days, most companies are reporting shrinking earnings, and it's hard to fill portfolios with true growth stocks. That's forcing longtime growth managers to alter their strategies.

Some funds have shifted their sector weightings, shunning troubled industrials and emphasizing companies that focus on expanding niches in health care or technology. Other portfolio managers have lowered their sights. Unable to find fast growers, they're taking companies that are suffering relatively small earnings declines.

For the moment, it's not clear whether the new approaches will work. Funds of all persuasions are being hammered. But some growth managers seem well-positioned to thrive when better times return.

One of the stronger performers lately has been Pioneer Oak Ridge Small Cap Growth(ORIGX Quote), which lost 29.9% of its value in the past year, outdoing the S&P 500 by 8.7 percentage points and besting 97% of its small-growth peers. The fund aims to buy modestly priced stocks that have grown consistently for the past three years.

In the past, the Pioneer managers often bought stocks that were increasing earnings at an annual rate of 15% or more. Now portfolio manager Robert McVicker says the fund is hard-pressed to find such fast growth -- and he doesn't expect to see it again anytime soon. "Because of the credit bubble, growth rates were artificially high," says McVicker. "When the economy returns to a more normal situation, we should be able to find companies with long-term growth rates of 10% or 12%."