American Funds and T. Rowe Run with the Bulls

Shareholders in growth funds from T. Rowe Price and American Funds are having their cake and eating it, too. For the most part, these funds held up much better during the bear market than other growth funds. If you owned them you still lost money, but not nearly as much as the funds offered by the competition.

Now we’ve got a bona fide growth-stock rally and those funds are still in the lead. At the moment, every single T. Rowe growth fund and all of the growth offerings in the American Funds lineup are running ahead of their peer group. That’s a pretty nice feat for relatively risk-averse shops like T. Rowe and American. It can’t seem fair to investors in  Federated Large Cap Growth  or  Janus Twenty , which trailed in the bear market and are behind the curve for the year to date.

Health-care and media stocks have driven  T. Rowe Price Mid-Cap Growth (RPMGX)
and  T. Rowe Price New America Growth (PRWAX) to gains of more than 20% this year.  T. Rowe Price New Horizons (PRNHX) manager has them beat with a 29% year-to-date return thanks to huge gainers like  Gilead Sciences (GILD) and Exult . New Horizons is one of T. Rowe's boldest funds, but it, too, held up better than its peers during the sell-off.

At American Funds, the story is media and telecommunications.  American Funds New Economy (ANEFX) is up 22% thanks to companies like  Yahoo  and  AT&T Wireless . For the giant  Growth Fund of America (AGTHX), media, telecom, and retailers like  Target (TGT) and  Lowe’s (LOW) have led to a fine 17% gain.

Although American and T. Rowe are a far cry from the hyperaggressive momentum shops that typically lead the way in big growth rallies, they did have a couple of things going for them this time around. First, as I’ve noted, some of the steady-growth companies that these firms favor have been stars of the rally. In addition, they took advantage of the bear market to scoop up fallen growth stocks at cheap prices. Many of T. Rowe’s growth funds did well in the early stages of the growth rally during the 1990s but started to lose ground in 1998 when speculation took hold.

In the unlikely event that the market were to become as speculative and momentum-driven as it was in the late 1990s, I wouldn’t expect American or T. Rowe to continue leading the pack. But that was probably a once-in-a-lifetime event. Historically, the market has been more sporadic than it has over the last decade. One year it’s up, the next year it’s down, and so on. If we do get that type choppy market for the next 10 years, T. Rowe and American ought to work out nicely for shareholders.