The market's 3 most attractive funds
Based on performance, cost and risk, these rank as favorites for large-cap investing.
By Vaughan Scully, S&P Capital IQ, The Outlook
While large-cap stocks have risen strongly in 2013, they have lagged small-cap and mid-cap stocks. Also, with the U.S. economy apparently on a firmer path to recovery, growth stocks would seem to have the edge over value.
With hundreds of large-cap growth funds to choose from, we set out to find the three most attractive from a performance, cost and risk perspective. We looked for large-cap growth funds with five-star rankings (our highest buy rating) from S&P Capital IQ that are open to new investors.
We also looked to funds that have no upfront sales load and have more than $100 million in assets. And we also limited our selection to share classes aimed at retail investors.
Of the funds that fit these criteria, we chose the three that have delivered top quartile performance over each of the past one-year, three-year and five-year periods.
Fidelity Focused Stock Fund (FTQGX)
While the name of this fund suggests it uses highly specific selection criteria, the fund is almost entirely unconstrained as to what it can buy.
It can own either growth or value stocks and holdings can be U.S.-based companies or headquartered abroad. It is fairly concentrated, owning just 51 different names with its top 10 accounting for about 40% of assets.
Turnover is heavy, at 279% annually. Financials, information technology and consumer discretionary are its largest sector exposures.
Its expense ratio is lower than the peer average of 1.28%. Also, its yield (1.14%) is below the peer average of 1.77%. As of December 31, 2012, its top three holdings were Mastercard (MA), Gilead Sciences (GILD) and Citigroup (C).
Fidelity Large-Cap Growth Enhanced Index (FLGEX)
This fund uses quantitative analysis to select stocks it believes will deliver a stronger total return than the Russell 1000 Growth Index.
It is more diversified, with 187 individual holdings, and less concentrated: top-10 holdings make up about 27% of assets. Turnover is 79%.
On a sector basis, its largest exposures are information technology, consumer discretionary and industrials. Its three largest holdings as of December 31 were Apple (AAPL), Microsoft (MSFT) and IBM (IBM). (Microsoft owns and publishes Top Stocks, an MSN Money site.)
Vanguard Growth Index Fund (VIGRX)
This fund tracks the MSCI U.S. Prime Market Growth Index, which incorporates the growth stocks in the U.S. Prime Market 750 Index.
As an index tracking fund, its expenses are low and its holdings are diversified; the fund owns 415 individual stocks, with the top 10 holdings representing just 23% of total assets.
The fund's largest sector exposures are information technology, consumer discretionary and industrials. Turnover is much lower than the others at just 23% annually.
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