These Funds Will Grow On You

8/21/2017


Growth stocks are leaving value-oriented stocks in the dust. Through Aug. 15, the S&P 500 Growth Index was up 16.7%, versus 5.6% for the value index. Growth indexes for the S&P MidCap 400 and S&P SmallCap 600 have topped their value counterparts by at least four percentage points so far this year.

Growth is dominating around the globe. The MSCI EAFE Growth Index, a popular international benchmark that invests in more than 15 countries, has returned 18.8% in 2017, compared to 12.9% for value. Based on MSCI regional indexes, growth has the upper hand in Europe and Asia.

Investors both here and overseas seem reluctant to settle for value stocks, which are typecast as modest profit growers. Instead they seek stocks with earnings momentum, partly reflecting expectations for low interest rates, modest economic growth, and mild inflation — trends that benefit companies that can generate growth.

To be sure, investors should never count out value stocks. Just last year, roles were reversed, with the S&P 500 Value Index returning 17.4%, versus only 6.9% for growth. And value stocks appear relatively cheap, which is no surprise. At 18.4 times trailing earnings, the S&P 500 Value Index trades at hefty discount to the P/E of 25.4 for growth. Finally, proper diversification dictates holding both growth and value stocks.

9 TOP GROWTH FUNDS
Investors looking for standout growth funds might consider the nine below. Large-company funds are listed first, followed by midcap funds and small-caps. Forecasts’ recommended funds are in Bold.
-- Total Return --
Average
Market
Capitalization
($Billions)
Fund (Price; Ticker)
YTD
(%)
5 Yrs.
(Ann.)
(%)
Assets
In Tech
(%)
Exp.
Ratio
(%)
Fund
Score
Fidelity Blue Chip Growth
($84; FBGRX)
24.0
17.0
76.0
39
0.82
90
T. Rowe Price Gro. Stock
($66; PRGFX)
23.9
16.7
99.1
29
0.68
97
Vanguard Growth
($131; VUG) ETF
17.5
14.5
84.7
26
0.06
80
SPDR S&P 400 Mid Cap Gro.
($142; MDYG)
7.5
13.6
5.3
21
0.15
93
T. Rowe Price Divers. Mid Cap
($28; PRDMX)
12.6
14.0
11.1
20
0.87
89
Vanguard Mid-Cap Gro. Index
($118; VOT) ETF
11.6
13.1
14.2
22
0.07
83
Scout Small Cap ($27; UMBHX)
17.0
15.4
2.1
33
1.13
95
T. Rowe Price QM US
Smll.-Cp.
($31; PRDSX)
9.7
14.9
4.0
21
0.81
88
Vanguard S&P Small-Cap 600
($132; VIOG) ETF
2.4
14.6
1.8
19
0.20
95

Still, growth stocks look like a timely bet given their recent performance. For fund investors, the nine U.S. growth funds listed at above are top picks. All nine excel in our rating system, boast strong track records, and have below-average expense ratios. But before you buy one or two, consider a word of caution. Many growth funds are overweight highflying technology stocks, with some holding nearly twice the 23% weighting of the S&P 500.

Two Forecasts-recommended funds are listed in bold, including Vanguard Growth ($131; VUG), our favorite pick among large-cap funds. It holds 311 stocks, with technology representing 26% of the portfolio, followed by consumer discretionary at 21%. An exchange-traded fund (ETF), Vanguard Growth has a 0.06% expense ratio. The ETF ranks among the top 21% of its group on 10-year performance.

OUR RECOMMENDED FUNDS
-- Year-To-Date --
--- Target Weight ---
Fund (Price; Ticker)
Total
Return *
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating
Baird Core Plus Bond ($12; BCOSX)
3.6
B
7
3
89
Fidelity Overseas ($48; FOSFX)
21.1
C
11
12
97
iShares Core S&P Mid-Cap Index
($173; IJH)
4.6
C
0
0
100
iShares Core S&P Small-Cap Index
($69; IJR)
0.3
C
0
0
100
iShares MSCI EAFE Small-Cap
($59; SCZ)
20.6
D
6
8
87
PRIMECAP Odyssey Stock ($29; POSKX)
12.1
A
7
8
99
T. Rowe Price QM U.S. Small-Cap
($31; PRDSX)
9.7
C
4
4
88
Vanguard GNMA ($11; VFIIX)
1.6
C
0
0
95
Vanguard Growth Index ($131; VUG)
17.5
C
10
11
80
Vanguard High-Yield Corporate
($6; VWEHX)
5.4
B
5
3
95
Vanguard Inter.-Term Tax Exempt
($14; VWITX)
4.3
B
0
0
89
Vanguard Mid-Cap Value Index
($104; VOE)
7.4
A
7
10
97
Vanguard S&P 500 Index ($227; VOO)
11.3
B
9
10
98
Vanguard Short-Term Invest.-Grade
($11; VFSTX)
2.0
A
7
3
97
Vanguard Small-Cap Value Index
($122; VBR)
0.9
A
4
4
94
Vanguard Strategic Small-Cap
($35; VSTCX)
0.0
D
4
4
83
Vanguard Total Bond Market Index
($82; BND)
2.9
C
0
0
61
Vanguard Value Index ($98; VTV)
6.5
C
9
10
99
Vanguard Wellesley ($26; VWINX)
5.4
D
0
0
96
Vanguard Wellington ($41; VWELX)
7.3
C
10
10
99
* Through Aug. 15. Ranks compare funds with same objectives: A = top 20%; B = next 20%; C= middle 20%; D = next 20%; E = bottom 20%. Fund ratings are percentile ranks, with 100 the best. 

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