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Five low-cost, high-return large-cap growth funds

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By Jonathan Burton, MarketWatch

SAN FRANCISCO (MarketWatch) -- The bigger they are, the harder they fall.

Large-capitalization growth mutual funds have proved that old chestnut since 2000. Even back-to-back gains for the category in the last two years haven't fully erased the bear market's scars; the typical large-cap fund still shows a negative return over the past five years. See full story.

A search of Morningstar's Principia database illustrates the harsh beating that large-cap growth funds suffered. An initial effort tried to find large-cap growth funds posting a gain in each year from 2000 through 2004.

Not one did. So the search was modified, instead looking for large-cap funds with positive returns in four of the past five years.

Two surfaced: The Jensen Portfolio and the Old Westbury Mid Cap Equity fund. The Old Westbury fund was disqualified because it holds mostly mid-capitalization stocks even though it's classed with the large-caps.

Regrouping was clearly in order. The focus then turned to large-cap funds beating the category average in each of the past five years.

Raising the bar, funds needed to have provided returns over that period with below category-average risk and cheap expenses -- and sport a current P/E ratio of 30 or less.

Five funds made that cut. American Funds Amcap; Shepherd Street Equity; State Street Research Legacy ; T. Rowe Price Blue Chip Growth and Westcore Growth.

The Jensen Portfolio would have passed this second test as well, but it's lagged the category average over the past two years. Still, a solid history of positive annual returns puts this conservative fund among the top five. The Westcore and State Street funds were comparable, but Westcore's overall record was better.

Keep in mind that these funds meet just one set of criteria. The large-cap growth sector is full of first-rate offerings. For example, Janus Twenty manager Scott Schoelzel has revived his concentrated fund, and Brandywine Blue's /zigman2/quotes/206656441/realtime BLUEX +0.88% William D'Alonzo has a long and respected track record.

Other established funds include Morningstar's current favorites: Fidelity Capital Appreciation; /zigman2/quotes/203843892/realtime FDCAX +0.97% Harbor Capital Appreciation; /zigman2/quotes/205348940/realtime HACAX +0.48% T. Rowe Price New America Growth; /zigman2/quotes/200582479/realtime PRWAX +0.75% Marsico Focus /zigman2/quotes/200146153/realtime MFOCX +0.51% and ABN AMRO/Montag & Caldwell Growth /zigman2/quotes/205890791/realtime MCGFX +0.51% .

"You definitely want to look at how a fund has behaved in the last five years," said Kunal Kapoor, Morningstar's director of fund analysis. "It will give you a good sense of how it's handled different environments. You want to understand the strategy your manager is applying, and then get comfortable with the risks."

American Funds Amcap

The American Funds family has been attracting more new cash than any other U.S. fund company, and judging from the Amcap /zigman2/quotes/210275185/realtime AMCPX +1.10% fund's performance it's easy to see why.

The $18.4 billion portfolio topped the large-cap growth category average in each of the past five years. Three of these generated positive results, including 2000, when the fund's 7.5 percent gain beat large-cap growth's 13.1 percent average decline.

Like other American offerings, Amcap is team-managed. In this case, four veterans each have a slice of the fund. Together, they focus on stocks with rapid earnings growth and strong financial foundations, building the 134-stock portfolio one name at a time.

The diverse basket is an eclectic mix. Recent holdings such as First Data, Microsoft /zigman2/quotes/207732364/composite MSFT +0.24% and Yahoo blended with General Dynamics, /zigman2/quotes/208560027/composite GD +3.96% Precision Castparts and Lowe's Companies /zigman2/quotes/205563664/composite LOW +0.65% .

The independent streak produces a low-risk portfolio that's delivered high returns. Amcap rose an annualized 3.2 percent over five years through Jan. 28, trouncing its category's 15.4 percent average yearly loss. Scant annual portfolio turnover of 17 percent and a 0.73 percent expense ratio -- less than half the category's 1.54 percent average -- enhance the fund's appeal.

T. Rowe Price Blue Chip Growth

A large-cap growth fund in the conservative T. Rowe Price Group lineup understandably will be a lower-risk proposition.

Still, longtime T. Rowe Price Blue Chip Growth /zigman2/quotes/208533233/realtime TRBCX +0.42% manager Larry Puglia has generated above-average returns for shareholders of this $8.3 billion no-load portfolio, which carries an expense ratio of 0.95 percent and annual turnover of 33 percent..

Some of the fund's core holdings are the giants of the Standard & Poor's 500 Index, such as Citigroup /zigman2/quotes/207741460/composite C +4.92% and General Electric /zigman2/quotes/208495069/composite GE +4.40% . These stalwarts give Puglia an anchor as he invests in companies with faster-growth potential like Amgen /zigman2/quotes/209157011/composite AMGN -1.22% and semiconductor leader Maxim Integrated Products /zigman2/quotes/201861354/composite MXIM +3.17% .

Over the past five years, Blue Chip Growth is down about 2 percent annualized -- still in the top 10 percent of its class, according to Morningstar.

The Jensen Portfolio

The Jensen Portfolio /zigman2/quotes/200918620/realtime JENSX +1.08% takes a no-nonsense approach to stocks: Every company in the 25-stock fund must have produced at least 15 percent annual return on equity each year for 10 consecutive years.

The ROE hurdle demonstrates consistency to this $2.8 billion fund's four managers, and keeps out momentum-driven stocks and other flashes in the pan. The low-turnover, no-load portfolio includes holdings in companies like Stryker, /zigman2/quotes/207664662/composite SYK +1.16% Omnicom Group /zigman2/quotes/209996569/composite OMC +3.38% and Procter & Gamble /zigman2/quotes/202894679/composite PG +0.40% .

Jensen's cautious strategy can provide high performance in down markets, but lower octane in bull markets. The fund posted gains in each of the past five years except 2002, when it lost 11 percent -- though still better than the category's 27.6 percent tumble. But Jensen's 16.1 percent return in 2004 lagged the typical large-cap growth fund's 28.7 percent surge.

Shepherd Street Equity

What Shepherd Street Equity /zigman2/quotes/201218060/realtime SSEFX +3.33% lacks in assets and recognition, the $30 million no-load fund makes up for in long-term performance.

Manager David Rea has outperformed the large-cap growth category average each year since 2000.

Key fund holdings such as Johnson & Johnson /zigman2/quotes/201724570/composite JNJ +0.27% and Berkshire Hathaway A /zigman2/quotes/208872451/composite BRK.A +2.70% coexist with more speculative fare like FalconStor Software /zigman2/quotes/208510601/composite FALC -5.00% and Given Imaging .

This style gives the 39-stock fund a low-risk profile and has delivered high returns. The focused fund's 1.7 percent annualized gain over five years lands it in the top 2 percent of its peers.

Westcore Growth

Pay careful attention to the Westcore Growth fund, as its impressive five-year record is virtually all the work of another manager.

New skippers Ross Moscatelli, Derek Scarth and Craig Juran have been on duty only since last year, and their performance will require close monitoring.

The team inherits a $132 million fund that has outperformed the large-cap growth category average in each of the past five years with below-average risk. If it's any indication, the fund's 4.2 percent gain over the past 12 months tops its category peers by almost 10 percentage points

The managers don't trade much -- the portfolio's annual turnover is only about 50 percent. Among their top holdings are telecommunications firms such as Qualcomm, /zigman2/quotes/206679220/composite QCOM +0.15% Nokia /zigman2/quotes/207421390/composite NOK +1.39% and Research In Motion .

Other companies in the portfolio are household names like Starbucks /zigman2/quotes/207508890/composite SBUX +2.31% and Dell Computer /zigman2/quotes/203822527/composite DELL -0.69% . And ironically, the Westcore managers also own shares of fund companies T. Rowe Price Group /zigman2/quotes/203200152/composite TROW +3.70% and Franklin Resources /zigman2/quotes/201997162/composite BEN +6.52% .

Five large-cap growth funds at a glance

Source: Morningstar (Data through 1/28/04)

/zigman2/quotes/206656441/realtime
US : U.S.: Nasdaq
$ 49.17
+0.43 +0.88%
Volume: 0.00
June 3, 2020
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/zigman2/quotes/203843892/realtime
US : U.S.: Nasdaq
$ 35.22
+0.34 +0.97%
Volume: 0.00
June 3, 2020
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/zigman2/quotes/205348940/realtime
US : U.S.: Nasdaq
$ 85.44
+0.41 +0.48%
Volume: 0.00
June 3, 2020
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/zigman2/quotes/200582479/realtime
US : U.S.: Nasdaq
$ 60.07
+0.45 +0.75%
Volume: 0.00
June 3, 2020
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/zigman2/quotes/200146153/realtime
US : U.S.: Nasdaq
$ 21.63
+0.11 +0.51%
Volume: 0.00
June 3, 2020
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/zigman2/quotes/205890791/realtime
US : U.S.: Nasdaq
$ 19.71
+0.10 +0.51%
Volume: 0.00
June 3, 2020
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/zigman2/quotes/210275185/realtime
US : U.S.: Nasdaq
$ 34.12
+0.37 +1.10%
Volume: 0.00
June 3, 2020
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/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 185.36
+0.45 +0.24%
Volume: 27.31M
June 3, 2020 4:00p
P/E Ratio
30.87
Dividend Yield
1.10%
Market Cap
$1405.67 billion
Rev. per Employee
$902,473
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/zigman2/quotes/208560027/composite
US : U.S.: NYSE
$ 155.23
+5.91 +3.96%
Volume: 1.28M
June 3, 2020 4:00p
P/E Ratio
13.10
Dividend Yield
2.83%
Market Cap
$44.53 billion
Rev. per Employee
$342,737
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/zigman2/quotes/205563664/composite
US : U.S.: NYSE
$ 132.84
+0.86 +0.65%
Volume: 4.59M
June 3, 2020 4:00p
P/E Ratio
22.42
Dividend Yield
1.66%
Market Cap
$100.30 billion
Rev. per Employee
$230,029
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/zigman2/quotes/208533233/realtime
US : U.S.: Nasdaq
$ 134.93
+0.56 +0.42%
Volume: 0.00
June 3, 2020
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/zigman2/quotes/207741460/composite
US : U.S.: NYSE
$ 53.34
+2.50 +4.92%
Volume: 33.34M
June 3, 2020 4:00p
P/E Ratio
7.39
Dividend Yield
3.82%
Market Cap
$111.04 billion
Rev. per Employee
$479,167
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/zigman2/quotes/208495069/composite
US : U.S.: NYSE
$ 7.36
+0.31 +4.40%
Volume: 122.82M
June 3, 2020 4:00p
P/E Ratio
11.06
Dividend Yield
0.54%
Market Cap
$64.38 billion
Rev. per Employee
$429,735
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/zigman2/quotes/209157011/composite
US : U.S.: Nasdaq
$ 221.00
-2.72 -1.22%
Volume: 3.66M
June 3, 2020 4:00p
P/E Ratio
17.32
Dividend Yield
2.90%
Market Cap
$130.00 billion
Rev. per Employee
$1.11M
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/zigman2/quotes/201861354/composite
US : U.S.: Nasdaq
$ 60.56
+1.86 +3.17%
Volume: 2.59M
June 3, 2020 4:00p
P/E Ratio
20.38
Dividend Yield
3.17%
Market Cap
$16.15 billion
Rev. per Employee
$349,295
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/zigman2/quotes/200918620/realtime
US : U.S.: Nasdaq
$ 50.38
+0.54 +1.08%
Volume: 0.00
June 3, 2020
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/zigman2/quotes/207664662/composite
US : U.S.: NYSE
$ 200.70
+2.31 +1.16%
Volume: 1.19M
June 3, 2020 4:00p
P/E Ratio
35.24
Dividend Yield
1.15%
Market Cap
$75.23 billion
Rev. per Employee
$377,806
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/zigman2/quotes/209996569/composite
US : U.S.: NYSE
$ 57.13
+1.87 +3.38%
Volume: 2.90M
June 3, 2020 4:00p
P/E Ratio
9.40
Dividend Yield
4.55%
Market Cap
$12.24 billion
Rev. per Employee
$217,190
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/zigman2/quotes/202894679/composite
US : U.S.: NYSE
$ 118.53
+0.47 +0.40%
Volume: 6.17M
June 3, 2020 4:00p
P/E Ratio
66.99
Dividend Yield
2.67%
Market Cap
$293.44 billion
Rev. per Employee
$727,304
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/zigman2/quotes/201218060/realtime
US : U.S.: Nasdaq
$ 11.17
+0.36 +3.33%
Volume: 0.00
June 3, 2020
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/zigman2/quotes/201724570/composite
US : U.S.: NYSE
$ 148.65
+0.40 +0.27%
Volume: 6.34M
June 3, 2020 4:00p
P/E Ratio
23.18
Dividend Yield
2.72%
Market Cap
$391.63 billion
Rev. per Employee
$603,509
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/zigman2/quotes/208872451/composite
US : U.S.: NYSE
$ 286,090
+7,530 +2.70%
Volume: 440.00
June 3, 2020 4:00p
P/E Ratio
47.82
Dividend Yield
N/A
Market Cap
$463.47 billion
Rev. per Employee
$637,113
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/zigman2/quotes/208510601/composite
US : U.S.: OTC
$ 4.75
-0.25 -5.00%
Volume: 516.00
June 3, 2020 1:14p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$28.12 million
Rev. per Employee
$220,221
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/zigman2/quotes/206679220/composite
US : U.S.: Nasdaq
$ 84.11
+0.13 +0.15%
Volume: 13.03M
June 3, 2020 4:00p
P/E Ratio
24.94
Dividend Yield
3.09%
Market Cap
$94.62 billion
Rev. per Employee
$607,486
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/zigman2/quotes/207421390/composite
US : U.S.: NYSE
$ 4.37
+0.06 +1.39%
Volume: 32.10M
June 3, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
3.91%
Market Cap
$24.52 billion
Rev. per Employee
$258,434
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/zigman2/quotes/207508890/composite
US : U.S.: Nasdaq
$ 79.58
+1.80 +2.31%
Volume: 9.96M
June 3, 2020 4:00p
P/E Ratio
28.34
Dividend Yield
2.06%
Market Cap
$92.96 billion
Rev. per Employee
$86,863
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/zigman2/quotes/203822527/composite
US : U.S.: NYSE
$ 48.81
-0.34 -0.69%
Volume: 2.63M
June 3, 2020 4:00p
P/E Ratio
8.35
Dividend Yield
N/A
Market Cap
$36.09 billion
Rev. per Employee
$624,972
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/zigman2/quotes/203200152/composite
US : U.S.: Nasdaq
$ 127.51
+4.55 +3.70%
Volume: 1.20M
June 3, 2020 4:00p
P/E Ratio
15.89
Dividend Yield
2.82%
Market Cap
$29.01 billion
Rev. per Employee
$765,110
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/zigman2/quotes/201997162/composite
US : U.S.: NYSE
$ 21.09
+1.29 +6.52%
Volume: 4.56M
June 3, 2020 4:00p
P/E Ratio
10.84
Dividend Yield
5.12%
Market Cap
$10.45 billion
Rev. per Employee
$616,773
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Jonathan Burton covers the mutual fund industry for MarketWatch

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