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These Similar Growth Funds Aren't Interchangeable

Andrew Daniels, CFA, CMA

Andrew Daniels: Silver-rated MFS Growth and Bronze-rated MFS Mid Cap Growth have several similarities. Both funds are managed by Eric Fischman, Matt Sabel, and Paul Gordon, and they're supported by MFS's deep fundamental analyst team. The process at both funds is focused on finding firms with underestimated earnings and cash flow growth prospects to hold for the next three to five years. The team seeks firms with pricing power, strong secular growth outlooks, and solid management teams. Not surprisingly, both funds' price multiples and earnings-growth rates trend well above their respective benchmarks. And as of June 2017, approximately 30% of the mid-cap fund's holdings were also in MFS Growth. 

Despite many similarities, there are some differences to be aware of. The growth fund is in the large growth Morningstar Category, and the average market cap of its holdings is $90 billion, while the mid-cap fund is in the mid-cap growth category and the average market cap of its holdings is just $13 billion. Moreover, the growth fund earns a Positive Price rating because of its Below Average fees, while the mid-cap fund earns a Neutral Price rating due to its middling fees. 

While MFS Growth may serve as a suitable core holding in investors' portfolios, MFS Mid Cap Growth's focus on mid-caps make it more appropriate as a supporting player.