3 Funds Vulnerable to a Growth Meltdown

A version of this article was published in the June 2016 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor here.

Since the start of the bull market in early 2009 through December 2015, technology and healthcare stocks helped fuel the typical growth fund's edge over blend and value funds. The Morningstar Healthcare Sector Index and the Morningstar Technology Sector Index returned 22.1% and 21.4%, respectively, compared with the S&P 500's return of 20.0% during the same period. But 2016 has shaken things up: Technology and healthcare stocks are nearly flat for the year to date, with some big names posting losses for the first time in years. Not surprisingly, funds with outsize stakes to these sectors have also dipped.

I found three Morningstar Medalist funds with at least two thirds of their portfolios in technology and healthcare stocks. (Sector funds were excluded from this short list.) Each fund has posted strong long-term records, but investors should keep in mind that large sector concentrations will lead to rough patches in performance.

Fidelity OTC

FOCPX stands out from its typical large-growth peer because of its large technology stake. The fund benchmarks itself to the Nasdaq Composite Index and allocates roughly 50% of assets to tech stocks and another 20% to healthcare stocks. Even within healthcare, portfolio manager Gavin Baker allocates a large chunk to biotech companies.

Touchstone Sands Capital Select Growth

PTSGX stashes nearly 40% of assets in technology stocks and 30% in healthcare stocks. Apple and

At the other end of the market-cap spectrum,

Brown Capital Management Small Company

BCSIX allocates nearly 50% of assets to small-cap technology stocks and 35% of assets to small-cap healthcare stocks. The Russell 2000 Growth Index, on the other hand, is made up of 25% technology stocks and 28% healthcare stocks. Tyler Technologies TYL and

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