U.S. News is releasing a series of stories highlighting top-rated mutual funds in various categories. These funds have performed well over the long term, are rated highly among the industry's analysts, and have low minimum investments, making them accessible to all investors—big or small. This is the fourth piece in a series of stories highlighting 10 categories that make up U.S. News's 100 Best Mutual Funds for the Long Term.
Since the financial crisis began, large-cap growth has been one of the most unloved fund categories. Of the $180 billion that investors have pulled from stock funds since January 2008, $83 billion has come from large-cap growth funds, according to Morningstar.
That's mainly because the category's performance has been poor. Over the past decade, the average fund in the category has lost about 1 percent. Compare that with the S&P 500, which has returned about 0.5 percent over the same time period, and the average large value fund, which is up 3 percent. Ironically, the dismal performance of large-cap growth funds is good news for the category now, says Morningstar analyst Christopher Davis. "When investors hate something, that's the time things really start to improve," he says.
Funds in this category invest in fast-growing companies, often in sectors like technology or healthcare. "A growth company could range from Coca-Cola to a small, speculative biotech stock," Davis says. Large-cap growth funds are a bit more volatile than large-cap value funds, because they invest in high-growth companies with higher valuations that may experience sharp swings in their share prices. "They have higher expectations embedded in them, so when growth companies disappoint the fall from grace tends to be more severe," Davis says.
With that in mind, here are U.S. News's best large-cap growth funds for the long term:
Jensen Portfolio (symbol JENSX). The managers at Jensen run strict screens to find a handful of stocks they feel strongly about. One requirement is that companies in the portfolio produce at least a 15 percent return on equity in each of the past 10 years. The fund typically holds about 30 companies. It's currently heavily weighted in the healthcare sector, and its largest holding is currently Abbot Laboratories. Unlike many of its peers, the fund has an extremely low turnover ratio, holding the average stock for about 8 years. Over the past 10 years, the fund has returned an annualized 2 percent. Its annual fees are 0.92 percent.
Franklin Growth (FKGRX). Morningstar says this fund is "buy-and-hold at its best." It has a low turnover ratio of 4 percent, meaning it holds companies, on average, for more than 20 years. Management buys mostly large-cap U.S. stocks, but it will consider smaller companies as well as international stocks, the latter of which currently make up 7 percent of the fund's total assets. The fund's largest holding, Apple, accounts for 6 percent of assets. Management is also heavily invested in industrial materials companies like 3M and Boeing. Over the past 10 years, the fund has returned an annualized 2 percent. Its annual fees are 1 percent.
Lou Holland Growth (LHGFX). Fund manager Monica Walker pays plenty of attention to valuations and a company's ability to generate double-digit earnings growth. On average, the fund holds about 50 stocks for a period of about three to five years. Currently, it is overweight in the energy industry, with large holdings in ExxonMobil and Occidental Petroleum. Apple is the fund's largest holding, which accounts for 5 percent of its total assets. The fund has returned an annualized 10 percent over the past 10 years. Its annual fees are 1.35 percent.
Vanguard Capital Opportunity (VHCOX). The fund's managers, who also run Primecap Odyssey Growth (POGRX) and Primecap Odyssey Stock (POSKX), seek stocks that are poised for growth but are temporarily undervalued. The fund, which has been closed to new investors since 2006, has returned an annualized 4 percent over the past decade. It comes with annual fees of 0.41 percent.