(August 18) – “Right time, right place,” writes Christopher Oster in today’s Wall Street Journal.
“So it has been for many mutual funds holding large growth stocks in recent years. By owning just about any big technology stocks and perhaps adding some other fast-growing issues, large-cap growth funds chalked up stellar returns. For the three years ended Dec. 31, the average large-cap growth fund gained 32.82%, according to fund-tracker Lipper Inc., with annualized gains of 40% and 50% being routine for many funds in the group.
“Y2K has been far less kind. The average large-cap growth fund this year has returned 1.42% as of Wednesday. Many of the biggest winners of the past few years — most notably several funds run by Janus Capital Corp. and Fred Alger Management — are in the red for the year so far. Since the tech sell-off that began in early March, the Idex Alger Aggressive Growth fund is off more than 25% and is down 9.3% for the year.
“‘There have been some questions raised about whether asset allocation matters any more,’ says Phil Edwards, a managing director in Standard & Poor’s Fund Services unit. ‘Maybe this shows it does. Maybe loading up on Janus Twenty with 100% of your portfolio was not such a good idea,’ he says. Janus Twenty, one of the biggest and best-performing growth funds last year with a return of 64.9%, is down 8% so far this year.
“But not all large-cap growth funds have fallen off the performance cliff. A few funds that enjoyed the ride of the previous three years shifted their portfolios earlier this year, cut the priciest stocks out of their stock diets and have continued to thrive.
“For investors, this year’s divergent growth-fund results are again proof that past performance is no guarantee of future returns. But investors can anticipate the future a little better if they learn more about their fund’s holdings: A portfolio concentrated in a few stocks is likely to be more volatile, for example, while a manager who takes a growth-at-a-reasonable-price approach is likely to enjoy lower risk, but often with lower returns.
“The best places to look for a fund’s holdings are in semiannual reports mailed to shareholders, which offer a complete portfolio breakdown. Fund holdings are often available on fund-company Web sites, many of which update portfolio positions (or at least a fund’s top 10 stocks) quarterly.