Fund Commentary with Steve Schoepke
Knowing Your Large-Cap Growth Stock Fund
Now that there are some signs of stability and maybe even stock market growth, expect to hear from you friendly broker or financial rep. After lying low - possibly with good reason - my bet is that the shift from "hand-holding" to sales pitch has already arrived in many mailboxes. I'm also willing to bet that more often than not, that pitch will expound the opportunities of large-cap growth stock funds.
Why am I so certain that large-cap growth funds will be pitched? For several reasons; first, the smaller- and mid-cap stock fund categories are generally tougher sells because timing the up-swings in these asset classes is challenging even in the best of markets. In addition, few investors build the core of their portfolio's asset allocation around small- and mid-cap stocks, and as a result fewer still ask their reps for these funds. On the other hand, large-cap growth funds are the "tried and true" of advancing markets, and historically, the easiest sale. For one thing, the large-cap growth fund covers some of the biggest and best-known global companies. They are also growth-oriented as opposed to the more prosaic large-core (blend) and large-value funds, which typically (should) lag during growth markets - if they don't lag large-cap growth during in a growth marke t, beware of what you are actually investing in.
Secondly, before you buy, remember that the large-cap growth fund category covers a lot of ground - 889 funds to be exact according to Lipper - and a wide variety of investment approaches and associated performance behaviors. Large-cap growth fund managers range from the comparatively benign "growth at a reasonable price" (or "garp" for short) to the aggressive momentum managers. Moreover, it is not uncommon to find some large-cap growth managers investing in relative smaller-cap stocks. For example, a fund that is benchmarked and may hold only stocks contained in the Russell 1000 Growth Index, may include everything from the largest mega-cap companies with capitalizations of upwards of $150 billion to those that are borderline small-cap ($2-3 billion).
Finally, the large-cap growth fund that you or your financial adviser picks can exhibit dramatically different performance and risk levels---sometimes better and sometime not-- than the average for the category. Moreover, large-cap growth funds (or any category of fund for that matter) with different investment approaches may out- or under-perform at different times during the market cycle. For instance, garp managers may do less well early in the growth cycle, while some momentum managers favor that phase of the cycle.
While variations in portfolio's compositions and investment approaches are not l imited to large-cap growth funds, it is important to remember that they exist and can result in performance differences, especially when one is thinking about moving back into equities.
Steve A. Schoepke
June 13, 2009
Steve Schoepke is an economist with more than 25 years experience within the mutual fund arena. His expertise is in fund portfolio analysis and due diligence and he has worked in that capacity for firms such as Lipper Inc., Sun America and Alianz. Steve's M.S. degree is from the University of Wisconsin.
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