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3 Gold-Rated Large-Growth Funds

The strategies--all open to new investors--differ in what they’re trying to do, and investors should understand before choosing.

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Alec Lucas: The large-growth Morningstar Category has been the best-performing asset class within domestic equity mutual funds over the past decade through September 2019. While investors shouldn’t count on a repeat performance over the next decade, there are three large-growth strategies currently open to new investors that carry Morningstar Analyst Ratings of Gold and should provide superior long-term results. The strategies differ in what they’re trying to do and understanding those differences should help investors select the right one for them.

T. Rowe Price Blue Chip Growth (TRBCX) is the only single manager fund in the group. Larry Puglia launched the strategy in 1993 and has led it through multiple market cycles. At more than $100 billion in assets, the strategy’s size presents a challenge, but it is one that Puglia, drawing on T. Rowe’s well-regarded analyst bench, has navigated well. He has consistently invested in 120 to 140 large- and mega-cap stocks throughout his tenure, even as the strategy has grown. That’s kept the portfolio fairly diversified, but concentration in individual names can be significant. In September 2018, for example, the fund’s position in Amazon.com (AMZN) topped out at 11.45% of assets, nearly double the stock’s weighting in the Russell 1000 Growth Index at the time. Puglia’s highest-conviction picks have tended to work out, though, and outperformance has been consistent. The biggest risk here is in choosing the right person to succeed Puglia, who is in his late 50s. Yet, T. Rowe Price’s track record in handling such transitions breeds confidence.

With American Funds AMCAP (AMCPX), key-person risk isn’t really an issue. Using parent Capital Group’s multimanager system, its roughly $66 billion asset base is split between six named managers and two analyst teams. And like T. Rowe, Capital Group has a good track record navigating manager succession. AMCAP differs from T. Rowe Price in its multi-cap mandate and in its more-muted growth profile. In fact, its 130- to 150-stock portfolio has been mostly closely correlated over long periods of the time with the Russell 3000 Index, not the Russell 3000 Growth Index. And while the fund’s weighting in tech stocks often represents its biggest sector exposure, it has not had a tech overweight versus the Russell 3000 Growth Index since at least the mid-1990s. A double-digit cash allocation is typical. That helps the fund moderate its ups and downs and enables managers to buy stocks in falling markets. That’s been a long-term recipe for success against the Russell 3000 Index, and it should continue to be.

Like American Funds AMCAP, Primecap Odyssey Growth (POGRX) uses a multimanager system. In fact, prior to co-founding Primecap in 1983, Howard Schow was one of the original managers on American Funds AMCAP upon its 1967 inception. While Schow passed away in 2012, he left behind him a strong team at Primecap, which includes Primecap Odyssey Growth’s five named managers. Also like AMCAP, Primecap Odyssey Growth has a multi-cap approach. While sensitive to valuations, it tends to be more aggressive, though, in building exposures to fast-growing market segments within tech and healthcare. And, like T. Rowe Price Blue Chip Growth, exposure to single names within the fund’s roughly 130- to 150-stock portfolio can be significant. Its stake in Nektar Therapeutics (NKTR) peaked at 6.3% of assets in March 2018, for example. Picks like Nektar have weighed on the fund’s results since mid-2018 and provided a reminder of its risks. But over a long period of time, the fund should reward investors who can stick with it.

Alec Lucas has a position in the following securities mentioned above: POGRX. Find out about Morningstar’s editorial policies.