How To (Re)Build a Diversified Portfolio
A Sector-Fund Smorgasborg
My Favorite Growth Funds
My Favorite Value Funds
Big-cap growth funds are coming off one of their worst years in at least the past decade. It's often taken an oddball strategy for a fund to avoid the carnage suffered by this ocean of losers.
Over the past 12 months the average big-cap growth fund is down more than 38%, according to
. The category's worst calendar-year tumble in the past 10 years was its 2.3% dip in 1994. For the most part, these funds' outsize losses are directly correlated to their outsize bets on tech stocks. When the tech sector skyrocketed in 1999, growth fund managers quietly stuffed 40% and more of their fund's money into the mercurial sector. Now that the tech-laden
Nasdaq Composite Index
has fallen more than 60% over the past 12 months, they're looking pretty battered.
Growth . . . Riiiiiiight
Source: Morningstar. Returns through March 22.
The Big Screen typically sifts for funds with solid long-term records vs. their peers, and other positive attributes like low expenses or a veteran manager. If you're looking for that kind of information, check out this
Big Screen Round-Up .
This screen is simply looking at a few funds that sidestepped at least some potholes over the past year. Here are the top-10 big-cap growth funds over the past 12 months that have an investment minimum of less than $10,000, according to Morningstar.
Not exactly a roster of household names, is it? Many of these funds are small and made our list by following quirky strategies compared with most growth funds.
Impact Management Investment
fund, for instance, has the lion's share of its money in financial and industrial stocks and just a 7% stake in the tech sector. Co-managers Arnold Schneider and Wallace Neal Johnson's conservative approach looks good right now. The fund beats at least 90% of its peers over the past one- and three-year periods, according to Morningstar.
Then again, this doesn't seem like a "growth" fund with its modest tech stake. Apparently investors agree, the fund has just $2 million in assets compared with $1.5 billion for the average big-cap growth fund, according to Morningstar.
You might say the same for the no-load
U.S. Global Leaders Growth
fund, run by George Yeager and George Fraise. They've got some 50% of the fund's money in the retail and health care sectors. Their 31% stake in retail stocks at the end of last year was nearly five times the sector's weighting in the
. This approach looks good, since health care stocks rose last year and retail stocks have been hit less hard than tech. The fund beats its average peer and the S&P 500 over the past one-, three- and five-year periods.
But its style might make it tough to shoehorn into a portfolio. Beyond its odd sector focus, the fund is concentrated, only holding about 20 stocks, compared with 85 for its average peer. That kind of focus can lead to pretty erratic performance, compared with a fund that spreads is less dependent on a few companies or sectors
as we've pointed out in the past.
James Jundt and Marcus Jundt, a father and son management team, are also fans of a concentrated approach in running the no-load
American Eagle Capital Appreciation
American Eagle Twenty
funds. Both funds were launched at the end of 1999 and both are carrying few stocks and a fair amount of cash.
Both funds do focus on stocks in fast-growing industries like tech and biotechnology, but at the end of the year the Capital Appreciation fund had 25% of its money in cash and the Twenty fund had more than 13% of its money in cash, compared with less than 5% for its average peer.
Both funds follow a focused strategy, holding 25 or so stocks at the end of last year. While the fund's cash cushion has helped it avoid some damage this year, the managers' aggressive style might not always hold up so well in downturns. This is borne out by the managers' spotty yet generally positive results in running the
One fund on this list that isn't so distinct from its broader peer group is the broker-sold
American Funds Amcap
fund. The fund's management team scours the big-cap market for stocks with solid earnings growth, but a modest valuation relative to its peers. That price-conscious approach has led to a focus on financial and cable stocks, but the fund is also diversified across all of the market's sectors.
Though the fund's strategy sounds pedestrian, its returns aren't. It beats at least 75% of its peers and the S&P 500 over the last one-, three-, five- and 10-year periods, according to Morningstar. If you're looking for a solid core stock fund, you might want to check out other American Funds like the
Growth Fund of America
Investment Company of America
As we've pointed out in the past, the firm's managers have a knack for participating in up markets but not taking on so much risk that they get clocked in downturns.
Another solid broker-sold fund that just barely missed our list is the
Smith Barney Aggressive Growth
fund where Ritchie Freeman fishes for promising mid-caps and rides his winners into large-cap land. The fund has consistently trounced its peers and the S&P 500.
If you're looking for a no-load fund that isn't following an oddball strategy, but isn't in a free fall either, check out the no-load
Janus Growth & Income
fund. Manager David Corkins took the reins from Tom Marsico back in 1997 and, like his colleagues, he likes the tech and telecom sectors. That said, his approach is a bit more price-conscious and he tends to keep 5% to 10% of the fund in bonds to generate income. That can be a cushion in a down market like this one.
Corkins has managed to ring up higher returns than his peers, beating at least 75% of his peers over the past one- and three-year periods. More impressively, his fund has fallen less than his average peer in down months over the past three years. For most investors a broader, more mainstream fund like this makes more sense than many on our list.