Aggressive tech-heavy growth funds got most of the ink and the money in 1999, but after last year's drubbing, it's a good time to look for some of the category's lower-octane fare.
The average big-cap growth fund has more than 40% of its money invested in tech stocks, according to
. That was great in 1999, when these funds rode the hot sector to a nearly 40% average gain. But last year the category lost more than 16% on average, as a slowing economy and thin-air valuations consequently cooled jittery investors to the sector. So, today the Big Screen is shopping for large-cap growth funds with above-average returns and below-average volatility.
We've screened the category, looking for funds that beat their average peer over the past one- and three-year periods, while also dropping less than their average peer in down months over the past three years, according to Morningstar. Here's a list of the 10 top funds we turned up, ranked by their one-year returns. We've also included their returns in the last three months of 2000, when the average big-cap growth fund lost more than 18%. We're also going to look at these funds' top stock picks, but first let's check out the funds:
You might be reluctant to look at funds in a popular-but-battered category. Still there's good reason to keep them in the fold. Compared with the
, which had a 21% tech weighting at the end of last year, this category hasn't been hit too hard. In fact, over the past 10 years, the average big-cap tech fund's 17.3% annualized return is right in line with the index.
Most of the funds on our list made the cut by being more price-conscious than their peers and less likely to make outsize bets on a single sector or stock. One fund that jumps off the list is the broker-sold
Smith Barney Aggressive Growth fund, where manager Richard Freeman has been the boss since its 1983 inception.
Freeman looks for promising small- and mid-cap companies that are increasing their earnings at a 20% clip. He tends to hold on to the stocks he buys, riding winners as they graduate into large-cap territory but not making titanic sector bets. The fund beats at least 95% of its peers and the S&P 500 over the past one-, three-, five- and 10-year periods, according to Morningstar. The fund's 23.4% 10-year annualized return beats the S&P 500 by six percentage points, as well as 96% of the fund's peers.
Another solid choice is the massive broker-sold $36.1 billion
Growth Fund of America, run by a team at quiet giant
. The team typically favors growth companies trading at a reasonable price, a strategy often boiled down to the acronym GARP.
Though many funds herald a GARP strategy, few apply it with the consistent success of these folks. The fund has a healthy tech-stock stake, but it also spreads its money broadly among different industries. That approach has worked well: The fund beats the S&P 500 and at least 85% of its peers over the past one-, three-, five- and 10-year periods, according to Morningstar. Its 20.6% 10-year annualized return beats 87% of its peers and the S&P 500 by two percentage points.
If you're looking for a
no-load option because our list is loaded with broker-sold funds, check out
Bramwell Growth or
Janus Equity-Income. Both funds would've made our cut if their one-year returns were a bit higher.
And if you're a die-hard index investor, check out the
Vanguard Growth Index fund, which tracks the
S&P/Barra Growth Index
. The fund hasn't throttled its peers, but it has basically kept pace with the S&P 500. The fund's 19.3% five-year annualized return beats the index by less than one percentage point. An added plus is its tiny 0.22% annual expense ratio, compared to 1.46% for its average peer.
One caveat is that tech stocks such as
have appreciated into big positions in the index that the fund tracks. At the end of September the fund had a 48% tech-stock position, according to Morningstar. That explains the fund's steep 16.9% tumble in the fourth quarter.
If you're wondering what stocks the 10 funds on our list liked best, look no further. A combined portfolio of those funds would have a cumulative holdings list comprising classic, widely held big-cap growth stocks. It would include chip titan
, pharmaceutical giant
and software behemoth