I Own What?! Income Funds That Pay None
The Big Screen: Small- and Mid-Cap Growth Funds
Growth funds' gains in the late 1990s showed why you should own them. Their steep tumble over the past year has shown why you should be picky.
Growth funds might not be a pretty sight today, but they'll perk up in a hurry when the value style inevitably cools -- a process that may have started last month, when growth funds trounced value competitors. Rather than pin all your hopes and money on the growth or value approach, a better idea is to fish for all-weather types in each camp.
Very few growth funds managed to top their peers when the Nasdaq was soaring and when it was falling. One is the broker-sold (SHRAX) - Get Report Smith Barney Aggressive Growth fund, which we're ushering into our Ima Winner Fund Club today.
On the other hand, we'll also check out the broker-sold (WEINX) AIM Weingarten fund, which trailed its peers both in sunny 1999 and in the stormy days since, earning it an unsightly track record and a spot in our Ima Loser Fund Club.
Ritchie Freeman has quietly built a jaw-dropping record in running the Smith Barney Aggressive Growth fund since ye olde 1983.
Freeman typically focuses on fast-growing small- and mid-cap companies, hoping to hang on to them for years as they graduate into large caps. That style might not sound jazzy, but the fund's returns are the best around. Barring a meltdown, Freeman is about to top his average peer for the fifth straight year. At the end of October, the fund topped the
and at least 97% of its peers over the past one, three, five and 10 years, according to Chicago fund tracker Morningstar.
Source: Morningstar. Returns through Oct. 31.
Freeman's low-trading style, with just a 1% turnover ratio compared with 138% for its average competitor, has also made the fund far more tax-efficient than 99% of its peers over the past three, five and 10 years, according to Morningstar.
Past Core and Growth-Fund Winners
Core Bond: Fremont Bond
Core Stock: Vanguard Total Stock Market Index
Large-Cap Growth: Growth Fund of America
Mid-Cap Growth: Bridgeway Aggressive Growth
Small-Cap Growth: Managers Special Equity
Of course, there are some potential concerns. Freeman has had a big appetite for health-care stocks, where about 45% of the fund's money was invested at the end of August. He also likes to stash almost half the fund's money in its top 10 holdings, with the rest spread among 65 other picks. So there might be a rough ride if Freeman's favorite sector or stocks fall hard. That said, the fund also has fared better in down months over the past three years compared with its peers.
After taking a good look at this fund, you might think the biggest risk is that Freeman will retire someday.
Hi, Ima Loser
The AIM Weingarten fund's big bets can help it sparkle from time to time, but they've hurt shareholders, too.
Past Core and Growth-Fund Losers
Core Bond: Putnam Income
Core Stock: Dreyfus
Large-Cap Growth: Putnam New Opportunities
Mid-Cap Growth: Putnam OTC & Emerging Growth
Small-Cap Growth: Alliance Quasar
The fund's management team, led by Jon Schoolar since May 1987, typically puts some money in steady, if sleepy, blue-chip stocks and the rest in more aggressive, faster-growing picks. The racy part of the portfolio can manifest itself in a big bet on a sizzling sector. At one point early last year, for instance, the fund had some 60% of its money in tech stocks.
As you might imagine, that big tech bet didn't work out too well. The fund is down more than 44% over the past 12 months, trailing 78% of its peers and trailing the S&P 500 by more than 21 percentage points. That might be more palatable if the fund trounced the pack when tech took off in 1998 and 1999, but it was right around the category average in each year.
A broader perspective isn't pretty either. The fund trails the S&P 500 and at least 78% of its peers over the past one, three, five and 10 years, according to Morningstar. Thanks to its big tech bet, whittled to 21% of the fund by June 30, the fund is averaging a 7% annual loss over the past three years compared with a flat return for the S&P 500.
The bottom line is that you invest in growth funds for higher highs, accepting the fact that you'll also see lower lows. This fund has given you too many lows and not enough highs.
Source: Morningstar. Returns through Oct. 31.
Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
firstname.lastname@example.org, but he cannot give specific financial advice.