Big Growth Funds Get a Much-Needed Rally

Now that's more like it. Nearly half of large-growth funds have posted double-digit gains for the year to date. They're still way off their highs from three years ago, but it's encouraging to see some black ink for a change.

With the first decent rally in three years, I figured it was time to check in on some of the biggest growth funds to see how they were faring in the rally and where they've placed their bets.

Overall, growth funds are positioned more conservatively. Three years ago tech companies were growing by leaps and bounds, and darn near every growth fund was loaded up on their shares. Today, there's little growth in the sector, and the market has realized the sector is much more sensitive to the economy than it used to be. As one growth manager told me: Tech does not equal growth. Today, most big growth funds have their bets spread among a diverse group of industries.

 American Funds Growth Fund of America (AGTHX)
This fund is up 9.37% for the year to date--right in line with the large-growth average. That's actually pretty impressive considering that it's far from a pure play on large growth. The fund is divvied up among a six-member team, and not all of them are growth-style managers. In addition, the fund generally holds 10% to 15% of assets in cash. A smattering of value stocks and a big cash stake enabled the fund to weather the storm better than most growth funds, but you shouldn't expect it to be at the top in a growth rally.

A big rally in media stocks would be welcome at this fund, which has 12% of assets--well above the category norm--riding on the sector. The biggest change from the end of 1999 is a much smaller bet on tech: 13% today versus 40% in 1999. Some of that money has been put to work in energy, which is up to 7% from 1% in 1999.

 American Century Ultra Inv  (TWCUX)
This fund is up 9.07% this year, which is a respectable figure. Like the Growth Fund of America, this fund held up better in the bear market thanks to attention to valuations and rather broad diversification. One big difference, though, is that this fund is running fully invested with just 2% of assets in cash. It has scored some nice gains in tech and media stocks, but its bias toward the largest stocks in the market has been a modest negative. Names such as  Microsoft (MSFT) and  Johnson & Johnson (JNJ) have lagged the market.

If you own this fund, root for a mega-cap rally. Its median stock has a market capitalization of a whopping $57 billion. Its sector weights are pretty typical for a large-growth fund, though its 26% health-care weighting is a little above average.

 Fidelity Blue Chip Growth  (FBGRX)
This fund's 8.61% gain is nothing to write home about, but it's understandable given manager John McDowell's preference for mega-caps and his restraint in chasing momentum stocks. Relative to other growth offerings, this fund's overweights are all in value sectors such as financials and consumer goods.

What's really interesting here is how little the fund's sector weights have changed since the end of 1999. It was in a much better position to withstand the growth meltdown than just about any other growth fund. It held 22% in tech back then, and it has 17% today. It already had substantial positions in financials and consumer goods. Sure, it's not setting the world on fire, but it has beaten three quarters of the large-growth universe over the trailing three years.

 Janus Fund  
And now the flip side of those more cautious funds. This fund has reeled off a nifty 11% gain this year as some of manager Blaine Rollins' favorite chip stocks and media companies have surged. That's good news because the fund lost more than most growth funds in the bear market and has some work to do at recouping.

Throughout the bear market, Rollins has maintained a bias toward media, semiconductors, and financials. However, he does have less riding on tech overall and has boosted his health-care weighting from 4% to 11%. In addition, he has stayed nearly fully invested throughout. If you own it, root for media stocks, as only a handful of funds have bigger media weightings.  Comcast (CMCSA),  Viacom , and  AOL Time Warner  are all big positions.

 Putnam Voyager A  
This fund is up 8.58% for the year to date, placing it in the middle of the pack, just as it has been for most of the past three years. That may well be the norm as the fund keeps its sector weights in line with the Russell 1000 Growth Index so that outperformance will rest purely on stock selection.

The biggest portfolio shifts are a big drop in telecom stocks and a big increase in health care to the tune of 28%. However, the really big change is in the managers running the show. The fund got an all-new team last July headed by Brian O'Toole, who came over from Citigroup. If you own this fund, you're really rooting for O'Toole to lead a turnaround in Putnam's growth group more than you are for any sector or stock.