Today's Fund Junkie features three sections on the best funds for growth investing: Big-cap growth funds, mid-cap growth funds and small-cap growth funds.
Big-cap growth funds are core stock holdings in many portfolios, so their 34% tumble over the last 12 months is particularly painful. The funds I've picked out are smarting, too, but usually less than their peers. They've also proven their mettle over time, without taking inordinate risks.
All of these funds have managers who have followed a consistent style and put in solid returns while falling less than their average peer in down months over the last three years, according to
Let's take it from the top: Ritchie Freeman has quietly built a sterling record running the broker-sold
Smith Barney Aggressive Growth fund since its 1983 inception. He typically buys shares of companies growing their earnings at a 20% annual clip in the small- and mid-cap pools, where about a third of the fund is invested. He then hangs on to his strongest picks as they graduate into big-caps.
This low-trading style has led to tax efficiency, but also eye-popping gains. The fund beats the
and at least 95% of its peers over the last one-, three-, five- and 10-year periods, according to Morningstar. Keep in mind, the fund may be due for a fall. Freeman had 41% of the fund in the now-sagging health care sector at the end of last year. And the fund has misstepped before, for instance, in 1996 when its 2.7% gain trailed nearly all of its peers.
Still, the fund's 9.9% loss so far this year tops 95% of its peers and the S&P 500, so these might just be quibbles.
Another quiet star is the
Growth Fund of America, run by a team of six managers at Los Angeles-based
, the nation's third-largest fund shop
with a knack for running core stock and bond funds. The team divvies up the fund's $39 billion, investing in big-cap stocks that are growing at a fast clip, but also have somewhat reasonable share prices. They spread the fund's money among nearly 200 stocks and don't trade often, a strategy that has worked out quite well.
The fund beats the S&P 500 and at least 85% of its peers over the last one-, three-, five- and 10-year periods. Its 17.9% 10-year annualized gain beats the S&P by more than two percentage points and 91% of the fund's competitors. Though traditionally sold through brokers, levying a load or sales charge, the firm recently launched a no-load "F" share class that's structured to be sold through fee-based planners who are paid through annual 12b-1 or marketing fees. Even the fund's Class A shares, which levy a maximum 5.75% front-end load, are cheap for long-term investors because their 0.70% annual expense ratio is less than half the category's average.
Yes, it is tough to look at growth funds without looking at one of growth-titan Janus' offerings. I picked out the no-load
Janus Growth & Income fund because it's essentially Janus Lite. Manager David Corkins does fish in the tech and telecom sectors, but not as extensively as his colleagues, whose tech fever sank them over the last year. He typically follows a more price-conscious approach and keeps 5% to 10% of the fund in bonds to generate income.
Corkins took the reins from departing star Tom Marsico back in 1997 and he's proven his skill. The fund beats at least 75% of its peers over the last one-, three- and five-year periods. The fund's 12% three-year annualized gain over the last three years beats the S&P 500 by more than nine percentage points and 89% of its competitors.
A fund you might not have heard of is the broker-sold
Merrill Lynch Fundamental Growth fund, which recently migrated from the less-aggressive big-cap blend category in Morningstar's database. Manager Larry Fuller, who has run the fund since its 1994 inception and will be this Monday's 10 Questions interview, likes to focus on big-cap stocks with growing, sustainable earnings. That might not sound sexy, but he's beaten his average peer each calendar year since the fund started.
The fund beats at least three-quarters of its peers over the past one-, three- and five-year periods and its 14.6% loss so far this year actually beats more than 80% of its competitors.
A slightly more aggressive fund on my list is the no-load
Harbor Capital Appreciation fund, where Sig Segalas of
has held the reins since 1990. Segalas and his colleagues focus on stocks of shops with above-average revenue growth and strong sales relative to their peers and the overall market. That's led them to pricey fare, which has hurt the fund last year when it lost 17%, compared to the category's average 14% fall.
Still, there's good reason to consider the fund. In the last 10 years it has beaten the S&P 500 seven times and its 18.3% 10-year annualized gain tops the S&P 500 and 95% of its peers. (Dutch money manager Robeco Groep N.V. announced their purchase of Harbor Funds Wednesday, but no major changes are expected at Harbor.)
There are three other funds that are run by solid managers and deserve mention:
Transamerica Premier Equity (
Jeff Van Harte),
Gabelli Growth (
Howard Ward) and
White Oak Growth Stock (Jim Oelschlager and Donna Barton).
Each is fairly aggressive, particularly White Oak Growth Stock, which only holds 20 or 25 stocks, and these managers are lagging their peers over the last year, but their longer-term success merits attention.
Keep in mind that even if you own solid funds, growth investing usually entails more volatility in pursuit of higher returns. If we built a portfolio of the five funds on our list and held it over the last five years, it would've lost 18.5% in its worst three-month stretch, September through November of last year. A portfolio that held the
Vanguard 500 Index fund, a proxy for the S&P 500, would've lost 15.8% over the same stretch.
At the same time, if we build a portfolio of the five growth funds on our list, we find that its top three-month gain over the last five years -- 30% -- dusted the Vanguard fund's 21.8%. If higher returns without egregious downside risk are what you're after, these are a few funds that can help you get there.
Fund Junkie runs every Monday, Wednesday and Friday, as well as occasional dispatches. 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.