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The Big Screen: Don't Throw Out All Your Big-Cap Growth Funds

You might want to ditch your sagging big-cap growth funds right now, but this is the type of market that can show which ones are worth hanging on to.

Screen Gems:
High Returns, Low Fees and Steady Management
Big-Cap Value Funds
Big-Cap Growth Funds
Tech Funds
Saturday Screen Roundup

Let's face it, these funds aren't looking good these days, down more than 26% on average over the last 12 months, according to Morningstar. They have some 40% of their money in the tech sector, which explains their success in 1999, when they almost doubled the S&P 500's 21% gain, and also their current implosion. During the bonny days between 1995 and 1999, these funds often trounced the S&P, but due to their current malaise they lag the popular benchmark over the past one-, five- and 10-year periods.



Growth, Sort Of
Large-cap growth funds haven't quite lived up to their name relative to the broader market.
Source: Morningstar. Annualized performance figures through March 1.

When you also consider that these funds got more than half of all net fund sales last year, it's natural to figure there are lots of investors who wish they hadn't loaded up on these once-hot funds. That said, it's not a good idea to dump all of them, since they are a core part of any diversified portfolio. After all, big-cap growth funds make up some 35% of the Wilshire 5000 Total Stock Market Index, a common yardstick for the broader market.

If you're looking for funds with this label that might be worth keeping or investigating now, look no further because the Big Screen has done its dutiful snooping. We combed through this 400-fund category, screening out all funds that lagged their peers over the past one-, three-, five- and 10-year periods. We also tossed out any funds that carry an expense ratio above the category's 1.46% average, and then we yanked out any that had fallen further than their average peer in down months over the past three years.

That left us with 11 funds and here they are, ranked by their 10-year annualized returns.

Keepers?
Of the 400 big-cap growth funds out there, only these 11 beat their average peer over these time periods, with below-average expenses and low volatility.
Fund 10-Year Annualized Return 5-Year Annualized Return 1-Year Return
(SHRAX) Smith Barney Aggressive Growth 21.1% 27% -4.5
(EPGAX) Fidelity Adviser Equity Growth 18.1 16.6 -23.4
(MIGFX) MFS Massachusetts Investors Growth Stock 18 22.6 -23.1
(AGTHX) Growth Fund of America 17.9 22.1 -12
(OPTFX) Oppenheimer Capital Appreciation 17.5 20.6 -13.2
(CUCAX) Warburg Pincus Capital Appreciation 17.2 19.5 -23.3
(AMCPX) Amcap 16.1 18.5 2
(ASGIX) Atlas Growth & Income 15.3 16.5 -15.7
(FECLX) Fortis Capital 14.5 16.1 -21.4
(FKREX) Franklin Growth and Income 14.3 18.5 -21
(WTEIX) Westcore Growth & Income 14.2 17.4 -13.4
Avg. Large-Cap Growth fund 14.1 14.2 -26.6
S&P 500 15.3 15.8 -9
Source: Morningstar. Annualized performance figures through March 1.

This is an intriguing list with plenty of solid choices, many of which are broker-sold funds. Let's start at the top, shall we?

In running the broker-sold (SHRAX) Smith Barney Aggressive Growth fund since its 1983 inception, manager Ritchie Freeman has built a solid track record. He typically buys fast-growing small- and mid-cap stocks, frequently holding them as they graduate into large-caps. The fund beats the S&P 500 and at least 90% of its peers over the past one-, three-, five- and 10-year periods, according to Morningstar. Freeman's outsize 41.5% stake in health care stocks helped quite a bit last year, but might weigh on returns this year.

The broker-sold (MIGFX) MFS Massachusetts Investors Growth Stock fund has also quietly built an enviable record. Co-managers Stephen Pesek and Thomas Barrett have held the reins for just two years, but they follow a style similar to their predecessors', focusing on stocks of fast-growing companies in fast-growing industries. They also have a deep bench of analysts to draw on.

The fund has high turnover and has taken its lumps over the past year, losing more than 23%. That said, it does routinely beat its peers and would be worth a look for long-term investors using a broker.

Two lesser-known, broker-sold gems on the list are (AGTHX) Growth Fund of America and the (AMCPX) Amcap fund, both from quiet giant American Funds. The Los Angeles-based firm is the third-largest fund shop in the nation behind only Fidelity and Vanguard, but because it sells its funds only through brokers it doesn't do a lot of advertising or mass-market promotion. You might not have heard of these funds, but they are worth a look.

Both team-managed funds follow moderate strategies that typically focus on growing companies with stocks that aren't as dear as the broader market or competitors'. That often keeps the funds from turning up on top-10 or highflier lists, but it keeps them out of the cellar too -- we've sung the firm's praises before.

Yes, both funds have a knack for beating their racier peers, but what's far more impressive is that they both managed to post gains during last year's rocky market.

You can't blame no-load investors for feeling a bit left out. Still, there are no-load funds on our list, like (CUCAX) Warburg Pincus Capital Appreciation , (ASGIX) Atlas Growth & Income and (WTEIX) Westcore Growth & Income . Other no-load funds you might check out that didn't make our list due to recent performance are (HACAX) Harbor Capital Appreciation , where the venerable Sig Segalas holds the reins, and the (VGEQX) Vanguard Growth Equity fund, where aggressive co-managers Bob Turner and Chris McHugh are being hit hard by tech's fall but still have a solid long-term record.

Curious about what stocks propelled the funds on our list? Well, we looked into that, too. If you combined these 11 funds' portfolios and sifted out their 10 favorite stocks, you'd be left with the stocks below. Granted, it's not too surprising, with battered networking bellwether Cisco Systems (CSCO) and blue-chip conglomerate General Electric (GE), but this list does show the degree to which companies like energy powerhouse Enron (ENE) have arrived.

Under the Hood
The stocks with the biggest weighting in the combined portfolios of the 11 above funds.
Stock Weighting in Funds Number of 11 Keeper Funds Owning the Stock
Cisco Systems (CSCO) 2% 9
Tyco International (TYC) 1.8 7
American International Group (AIG) 1.6 10
Enron (ENE) 1.4 5
General Electric (GE) 1.4 6
EMC (EMC) 1.3 6
Intel (INTC) 1.3 8
Pfizer (PFE) 1.3 10
Viacom 1.2 8
Microsoft (MSFT) 1.2 9
Source: Morningstar. Holdings as of funds' most recent portfolio reports.

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