Big Looks Beautiful

5/16/2011


In our view, the sweet spot for investing is large. Large-company stocks, that is.

STANDOUT LARGE-COMPANY STOCK FUNDS
Total Return
Fund (Price; Ticker)
YTD
(%)
3-Yr.
(Annual.)
(%)
Expense
Ratio
(%)
Fund
Score
Style
Amer. Century Disciplined Growth
($13; ADSIX)
10.7
5.0
1.05
88
Growth
American Century Growth
($28; TWCGX)
7.8
3.7
1.00
81
Growth
Buffalo Growth ($27; BUFGX) *
8.2
7.6
0.94
93
Growth
Dreyfus Disciplined ($33; DDSTX)
8.7
1.5
1.00
81
Blend
Homestead Value ($34; HOVLX)
11.5
2.6
0.80
86
Value
Vanguard Diversified Equity
($22; VDEQX)
9.6
2.9
0.40
91
Blend
Vanguard Equity-Income
($22; VEIPX)
10.4
2.6
0.31
97
Value
Vang. Tax-Mgd. Capital App.
($34; VMCAX)
9.0
2.0
0.20
92
Blend
* A Forecasts recommended fund.

With the biggest stocks cheap relative to historical norms and compared to small-caps and midcaps, fund investors should be looking for opportunities among large stocks. Among the more than 840 large-cap funds in our scoring system, the eight listed above possess these key attributes:

• Scores above 80, or the top 20%, in our proprietary rating system. Ranks reflect total returns for up to five years, expense ratios, tax-efficiency, and risk-adjusted performance.

• Performance in both strong and weak stock markets consistently above peer averages. All eight funds outpaced category averages for the last one , three , and five years.

• Bona fide large-cap exposure. Outsized holdings in midsize and small-company stocks, or lopsided sector weightings, can skew performance and make peer comparisons dubious. To make the cut, the funds needed to have at least two-thirds of assets in large stocks. In addition, all eight have reasonably diversified portfolios, with no more than 30% of assets in a particular sector.

• Portfolio managers that adhere to specific strategy. All eight have maintained their current investment style in at least four of the last five years. And while the funds have seen assets climb over the past year, all eight remain small enough to continue to invest in the style that worked in the past.

• Reasonable expenses. All eight funds charge lower fees than their peer-group average.

Forecasts-recommended Buffalo Growth ($27; BUFGX) rarely deviates from its large-cap growth approach. The fund invests mostly in fast-growing U.S. companies expected to benefit from international expansion and exposure to emerging markets. On March 31, the market capitalization of the median stock in Buffalo Growth's portfolio was $26 billion — firmly in the large-cap camp. The fund, which holds nearly 60 stocks, favors technology (27% of assets), health care (17%), and industrials (14%). Buffalo Growth ranks among the top 10% of its peers for three- , five- , and 10-year returns. The fund, which requires a $2,500 minimum initial investment, is up 8.2% so far in 2011.

 

FORECASTS FUND RECOMMENDATIONS
Through May 10, our recommended Growth Portfolio has returned 7.9% for the year, versus 8.4% for its benchmark portfolio. The Conservative Portfolio has returned 7.2%, versus 6.7% for its benchmark.
Year-to-Date
% of Portfolio
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating
American Century Heritage
($23; TWHIX)
9.9
D
9
10
62
Buffalo Growth
($27; BUFGX)
8.2
C
9
10
93
Dreyfus MidCap Index
($31; PESPX)
11.5
B
0
0
90
Dreyfus Small Cap Stock Index
($22; DISSX)
10.1
B
0
0
55
Heartland Select Value
($31; HRSVX)
7.9
E
7
10
76
Heartland Value Plus
($32; HRVIX)
7.2
D
9
10
92
T. Rowe Price Int'l Discovery
($47; PRIDX)
6.2
C
5
6
40
T. Rowe Price New Horizons
($38; PRNHX)
13.8
B
9
10
96
Vanguard 500 Index
($125; VFINX)
8.5
B
5
5
60
Vanguard Dividend Growth
($16; VDIGX)
8.7
B
8
9
96
Vanguard Emerging Mkts.
Stock Indx. ($31; VEIEX)
2.4
B
0
5
93
Vanguard GNMA ($11; VFIIX)
2.5
A
4
0
96
Vanguard Inter.-Term Tax
Exempt ($13; VWITX)
2.9
B
0
0
73
Vanguard International Value
($34; VTRIX)
5.3
E
8
6
50
Vanguard Short-Term Invest.
Grade ($11; VFSTX)
1.5
B
0
0
78
Vanguard Total Bond Mkt. Index ($11; VBMFX)
1.9
E
12
0
53
Vanguard Total Int'l Stock
Index ($17; VGTSX)
5.9
D
6
6
87
Vanguard Wellesley Income
($23; VWINX)
5.5
A
0
0
97
Vanguard Wellington
($33 VWELX)
6.7
A
5
8
84
Wells Fargo Advantage High
Income ($8; STHYX)
5.7
C
4
5
76
* Year-to-date ranks through May 10 from Morningstar, comparing performance among funds with same objectives. A = top 20%; B = next 20%; C= middle 20%; D = next 20%; E = bottom 20%. Fund ratings are percentile ranks based on our fund-rating system.

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