If you're courageous enough not to swear off growth funds altogether, we've found some that deserve your money.
Make no mistake, growth fund managers, who tend to focus on the pricey shares of the fastest-growing companies, are in a blue period. The average big-cap growth fund rode a fat tech bet to a 41% gain in 1999. But thanks to the tech sector's collapse, these funds have lost more than a third of their value over the past 12 months. Tech-light value funds, which hunt for bargains on Wall Street, are modestly in the black over the same stretch.
Running on Empty
Rolling growth funds gather no moss |
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| Source: Morningstar. Annualized returns through Aug. 16 |
Given those returns, it's no surprise that value funds are taking in billions of dollars more than their growth counterparts this year. Problem is, shifting to whatever style has worked in recent months typically ramps up trading costs and volatility more than returns -- a point we explored earlier this year. So instead of betting on one style to the exclusion of the other, it makes more sense to have a foot in each camp even though one always looks like a laggard. Two weeks ago the Big Screen
showed you a short list of large-cap value funds we like; now we've crunched some numbers to pull together a roster of big-cap growth funds that have offered solid returns with less risk over the past five years.
We screened out any fund that didn't beat its average peer over the past one, three and five years. Then we yanked out funds that are closed or carry steep minimum investments. We ranked the funds we found by their annualized returns over the past five years. Here's our top 10:
These funds might not be home-run hitters, since most of those tech-sick folks are cellar-dwellers these days. But there are some true stars on this list, starting at the top with Ritchie Freeman, who has run the broker-sold
(SHRAX Quote - Cramer on SHRAX - Stock Picks)Smith Barney Aggressive Growth fund since 1983.
Freeman's record is unassailable, beating the
S&P 500 and at least 97% of his peers over the past one, three, five and 10 years. Though this is a large-cap fund, Freeman typically tries to buy small- and mid-cap stocks, where about 35% of the fund's money was invested at the end of April. The idea is that if he's picking the right companies, they'll grow into big-caps; given the fund's track record and low-trading style, it seems he's chosen wisely. Indeed, the prospect of Freeman's retirement some day seems like the biggest knock on this fund.
American Funds, quietly the nation's third-largest fund shop, has two solid entries on the list: the
(AGTHX Quote - Cramer on AGTHX - Stock Picks)Growth Fund of America and the
(AMCPX Quote - Cramer on AMCPX - Stock Picks)Amcap fund. Both broker-sold funds are run by a team of managers hunting for stocks they think have solid growth potential and a reasonable valuation.
The Amcap fund tends to focus on cheaper, less volatile stocks, but the two funds have offered similar returns. Both trounce at least 85% of their peers over the past one, three, five and 10 years.
You might be surprised to find two
Janus funds on this list since many of the Denver firm's high-octane, tech-heavy offerings have cratered. But the no-load
(JAGIX Quote - Cramer on JAGIX - Stock Picks)Growth & Income and
(JAEIX Quote - Cramer on JAEIX - Stock Picks)Core Equity funds' calmer approaches have paid off. The two funds beat at least 80% of their peers over the rocky past one and three years.
David Corkins has run the Growth & Income fund since 1997. He's a bit more valuation conscious than his colleagues and keeps 5% to 10% of the fund's money in bonds to generate income. That has paved a smoother road that helped the fund ride out the tech-led storm better than most.
The Core Equity fund, formerly the Janus Equity Income fund, has also typically been less aggressive than most Janus fare, but that might change a bit. Along with its name change, the firm hopes to remove a requirement that manager Karen Reidy keep least 65% of its money in bonds or dividend-paying stocks. In its place, Janus hopes to require she keep 80% of the fund's money in growth stocks, so the fund might end up being a bit racier than its current mandate suggests.
In addition to these 10 funds, there are three no-load choices that deserve mention: the
(NOEQX Quote - Cramer on NOEQX - Stock Picks)Northern Select Equity,
(TEQUX Quote - Cramer on TEQUX - Stock Picks)Transamerica Premier Equity and
(HACAX Quote - Cramer on HACAX - Stock Picks)Harbor Capital Appreciation funds. Each made our cut, but their five-year returns fell just short of the top 10 on our list.
Robert Streed has run the Northern Select Equity fund since its 1994 inception. He's a bit more aggressive than the funds we've talked about, focusing on pricier shares than some. But if you're willing to take a slightly rougher ride, this fund is worth a look. The fund's 17.3% five-year annualized return beat 93% of its peers and tops the S&P 500 by more than 3 percentage points.
Jeff Van Harte, lead manager of the Transamerica Premier Equity fund since 1998, has followed a similar style to similar returns. Focusing about half his fund's money on stocks in the financial and tech sectors, he managed to post a 17.1% annualized gain over the past five years.
Another fund worth a look is the Harbor Capital Appreciation fund, run by Sig Segalas since 1990. Segalas and his team focus on stocks of companies that are growing their revenues faster than the S&P 500 average. The fund's 17.1% annualized gain over the past 10 years beats 95% of its peers and leads the S&P 500 by more than 2 percentage points.
Well, there you have it: a list of candidates to consider if you want to replace the ravaged growth funds you own or have already dumped.
Ian McDonald
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