Remember, only 146 offerings get to be Fund Analyst Picks

Large-cap vehicles have toughest road

Dollars & Sense

November 11, 2001|By William Samuel Rocco | William Samuel Rocco,MORNINGSTAR.COM

It's pretty tough for a fund to become one of our Fund Analyst Picks. Our analysts are exacting about their choices. They follow demanding selection guidelines. And, though there are hundreds of good funds, our analysts can't make more than five picks per category, and they're encouraged to make even fewer selections in smaller categories. Therefore, only 146 of the 5,800 funds in our database are picks - which is a bit less than three in 100.

As difficult as it is for the average fund to become a pick, it's even more difficult for the typical large-cap offering. Such funds have long been the backbones of most investors' portfolios, and fund companies have responded by coming out with hundreds of them over the years.

The large-growth, large-blend and large-value categories have 350 to 550 distinct offerings. Consequently, only about one in 100 funds in these three categories have become picks.

That means some very good funds have been left out. In light of that fact - and the strong investor interest in large-cap funds - we've selected two near misses in each of the three categories: Growth Fund of America, Smith Barney Aggressive Growth, Fidelity Dividend Growth, Thornburg Value, Ameristock and Clipper. These six funds aren't the only other great funds in the large-growth, large-blend, and large-value categories, but they're the ones we like the most.

Large-growth runners-up:

Growth Fund of America: This fund is more conservative than many of its peers. Due to its tamer price multiples and broader sector and stock exposure, it has held up much better than most large-growth offerings in recent years, and it has been one of the least volatile members of its category over time. But thanks to its managers' stock-picking skills, it also looks great from a return perspective. The fund also boasts low expenses and excellent tax efficiency.

Smith Barney Aggressive Growth: Manager Richard Freeman is incredibly patient, but he's bold, too. He readily builds big positions in individual issues and sectors, and he pays far more attention to smaller caps than most of his peers. He's executed his intrepid strategy deftly over the years though, so the fund's long-term returns are top-notch. And come tax day, the fund is a pleasure to own, thanks to its single-digit annual turnover.

Fetching large-blend options:

Fidelity Dividend Growth: Manager Charles Mangum is a growth-at-a-reasonable price investor, but that doesn't mean he's unwilling to make decisive sector calls. A light tech stake stung in 1999, but the fund has earned impressive overall returns during Mangum's tenure, due to his generally strong stock selection. The depth of Fidelity's resources adds to its appeal.

Thornburg Value: This fund is no S&P 500 wannabe. Manager Bill Fries runs a concentrated portfolio of just 40 to 50 names, and he readily focuses on individual sectors and pursues mid-caps and foreign issues as he searches for good bargains. Fries implemented his atypical approach deftly; the fund has outpaced all but three of its peers over the past five years, while keeping volatility under control. This fund isn't cheap, but Fries has earned his fees.

Large-value near misses:

Ameristock: Manager Nick Gerber buys attractively priced giant caps and holds onto them. That's not an exciting strategy, but Gerber has executed it well. The fund has earned top-decile long-term returns and suffered less volatility than many of its rivals. And the fund has been pretty tax-efficient, thanks to its low turnover.

Clipper: This fund is a standout in several respects. Co-managers James Gipson, Michael Sandler and Bruce Veaco own just 20 to 30 stocks, and they're not shy about loading up on financials or holding cash. The fund ranks among its category's best in both return and risk.

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