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The Big Screen: Big-Cap Growth Funds

Big-cap growth funds might be tarnished by their sooty and beloved tech stocks, but there are still gems in this bin.

Screen Gems:
High Returns, Low Fees
Saturday Screen Roundup
Small-Cap Growth Funds
Mid-Cap Growth Funds
Large-Cap Growth Funds
Tech Funds

Big-cap growth funds typically focus on stocks of companies that have market capitalizations of more than $10 billion and are growing their earnings faster than their peers and the overall market. That often translates to a taste for tech stocks. The average large-cap growth fund had almost 40% of its cash stashed in that sector at the end of last month, compared with a 23.7% tech weighting in the S&P 500, according to Morningstar. These funds rode tech stocks to 33.2% and 40.7% average returns in 1998 and 1999, respectively.

More recently, however, their appetite for tech has led to heartburn for their shareholders. The average big-cap growth fund lost 14% last year, and they're down another 7.4% already this year. Over the long term, they're still ahead of the S&P 500 and they're still a core holding in a diversified portfolio. Big-cap growth stocks comprise some 37% of the Wilshire 5000 Total Stock Market Index, a good yardstick for the U.S. stock market.



Large and Not in Charge
Large-cap growth funds have had a tough run of late
Source: Morningstar. Annualized performance figures through Feb. 20.

If you're lacking big-cap growth exposure or you're just curious about these funds, the Big Screen has done some modest snooping for you. We sifted the 400-fund category for funds that beat their average peer over the past one- and three-year periods. Then we yanked out funds where the manager had held the reins for less than three years, those with expenses above the category's 1.46% average and any with an investment minimum above $10,000.

Here's a top 10 list, ranked by their three-year annualized returns.

Leading Large-Cap Growth Funds
Fund 3-Year Annualized 1-Year Return Load/No-Load
(SHRAX) Smith Barney Aggressive Growth 33.6% 8.7% Load
(JAGIX) Janus Growth & Income 17.8 -16.7 No-Load
(UNVGX) Waddell & Reed Adv Vanguard 17.5 -12.9 Load
(GEPCX) GE Premier Growth Equity 17.5 -0.1 No-Load
(ALGRX) Alger Growth Retirement 17.3 -13.4 No-Load
(SBLGX) Smith Barney Large Cap Growth 17.2 -9.1 Load
(OPTFX) Oppenheimer Capital Appreciation 17.2 -3.3 Load
(WOGSX) White Oak Growth Stock 16.5 -17.9 No-Load
(CUCAX) Warburg Pincus Capital Appreciation 16.5 -13.6 No-Load
(ALGAX) Alger Large Cap Growth 15.1 -14.3 Load
Avg. Large-Cap Growth fund 10.8 -19.1 N/A
S&P 500 8.7 -3.9 N/A
Source: Morningstar. Annualized performance figures through Feb. 20.

It's an intriguing list, including many of the category's stars.

At the top you've got Ritchie Freeman, who's quietly built one of the fund industry's most solid records running the broker-sold (SHRAX) Smith Barney Aggressive Growth fund since its 1983 inception -- you might recognize his name from the ads Citigroup is splattering in mags at a frantic pace these days. The promotion is justified, since his fund beats more than 95% of its peers and the S&P 500 over the past one-, three-, five- and 10-year periods, according to Morningstar. Freeman's done it by buying small- and mid-cap stocks growing their earnings at a 20% clip and holding on to them for years.

Next you've got the (JAGIX) Janus Growth & Income fund, where David Corkins took the reins from departing fund manager Tom Marsico back in 1997. Like many of his colleagues at the Denver fund shop, Corkins has a taste for tech and telecom stocks, where more than half of the fund's assets were invested at the end of October, according to the firm's most recent portfolio report.

Both the (ALGRX) Alger Growth Retirement fund and the (ALGAX) Alger Large Cap Growth fund are co-managed by CNBC darling David Alger and Ron Tartaro. The pair hunt for stocks of companies that have solid market share in their industry and are growing their earnings much faster than their peers. Both funds are fairly diversified among sectors and beat at least 70% of their peers over the past one- and three-year periods, according to Morningstar.

The no-load (WOGSX) White Oak Growth Stock fund might be the most aggressive fund on the list. Donna Barton and Jim Oelschlager have co-managed the fund since its 1992 inception. They run a concentrated portfolio with about 25 stocks in the technology, health care and financial sectors. They typically buy stocks of giant companies that are leaders in their industry and hang on to them with little trading. That approach sounds pretty simple, but it has led to solid returns. The fund's 21.8% five-year annualized return beats the S&P 500 and more than 90% of the fund's peers.

One fund that didn't make our list because of a technicality deserves a mention. The broker-sold (AGTHX) Growth Fund of America , one of many solid core stock funds run by quiet giant American Funds, has a sparkling track record and low expenses, but missed our list because no tenure is listed for its team of managers in Morningstar's database.

The fund beats some 90% of its peers and the S&P 500 over the past one-, three-, five- and 10-year periods, according to Morningstar. That kind of consistency makes the fund worth a look.

No doubt die-hard indexers will be drawn to the no-load (VIGRX) Vanguard Growth Index fund. But the fund, which tracks the S&P 500/Barra Growth Index, has some issues. Yes, its 0.22% expense ratio is quite low, but tracking this index of essentially the 150 biggest growth stocks hasn't really worked out that well. The fund trails its average peer and the S&P 500 over the past one- and three-year periods, according to Morningstar. That said, its 15.4% five-year annualized gain does beat more than 60% of other large-cap growth funds.

If you're curious as to which stocks propelled the funds that did make it onto our list, look no further. We sifted our 10 leading funds for their cumulative top 10 holdings and came up with a list of giant, well-known companies, as you might imagine.

Under the Hood
The stocks with the biggest weighting in the combined portfolios of the 10 above funds
Stock Weighting in Top 10 Funds Number of Top 10 Funds Owning the Stock
Pfizer (PFE) 3.3% 10
Cisco (CSCO) 2.6 9
Citigroup (C) 2.4 8
EMC (EMC) 2.3 7
Microsoft (MSFT) 2.2 9
Intel (INTC) 1.9 7
Tyco International (TYC) 1.8 6
American International Group (AIG) 1.7 7
Comcast (CMCSK) 1.6 7
General Electric (GE) 1.6 5
Source: Morningstar. Holdings as of funds' most recent portfolio reports.

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