The economy and stock market are setting the stage for large-cap growth stocks and now is a good time to consider adding them to your portfolio with a quality mutual fund or ETF.
In the big-picture view, the place where the economy and stock market overlap is business, which is why smart investors pay attention to the four phases of the business cycle — the Early-Cycle Phase, the Mid-Cycle Phase, the Late-Cycle Phase, and the Recession Phase — and overweight allocations to investment types that can lead in the current phase.
The economy is now beginning to display signs of the Late-Cycle Phase, which is where economic growth is positive but begins to moderate as the Fed starts raising interest rates. This phase tends to last from 12 to 18 months.
Large Caps With Consistent Appreciation
One particular area of investing that tends to outperform the major market indices during the late phase is large-cap growth stocks, which are those that have shown trends for consistent appreciation in price with the expectation that the rising price trends will continue.
This is somewhat of a momentum strategy, which is to say that the economy is still growing and the largest, healthiest companies are also continuing to grow their earnings. Although companies with smaller capitalizations can continue growing, the risk appetites of investors tend to decline, as often does the prices of small-cap stocks along with it.
Therefore an ideal way to capture the late phase growth is with one of the best large-cap growth funds available.
Best Large-Cap Growth Funds for a Growing Economy
Here are three of the best large-cap growth stock funds that can give your portfolio a boost in the latter stage of a market cycle:
- Fidelity Contrafund (FCNTX): Despite its hefty size at over $106 billion, FCNTX is a low-cost, well-managed large growth fund that can be a solid bet when growth is in favor. At the helm for over 24 years, manager Will Danoff knows large-cap growth stocks like the back of his hand. Contrafund has put in middle-of-the-road returns in recent years, with performance ranks versus large growth category peers hovering around the 50th percentile range. But looking back at the most recent late-cycle phase, most prominent in 2007, FCNTX outperformed 81% of large growth category peers with a gain of 19.8%, compared to 5.5% for the S&P 500 Index. The expense ratio for FCNTX is low at 0.66%.
- Vanguard Growth Index (VIGRX): This fund offers cheap exposure to large U.S. companies in market sectors that tend to grow more quickly than the broad market. Since 2013 VIGRX has tracked the CRSP US Large Cap Growth Index. Top holdings include large-cap growth stocks like Apple (NASDAQ: AAPL) and Gilead Sciences (NASDAQ: GILD), both of which have helped VIGRX stay ahead of the S&P 500 Index in 2015. The rock bottom low expense ratio of 0.24% for VIGRX helps to enhance returns.
- PowerShares QQQ ETF (QQQ): This ETF provides investors with big exposure to large-cap growth stocks and an added concentration of technology sector stocks, as well as consumer discretionary and biotech firms. QQQ tracks the cap-weighted Nasdaq-100 Index, which includes the 100 largest non-financial stocks in the Nasdaq Composite Index. Top holdings include AAPL and GILD but also Facebook (NASDAQ: FB) and Google (NASDAQ: GOOG). For evidence of its ability to outperform when growth is in favor, QQQ beat 99% of large growth funds in 2007. Long-term returns are also impressive with ranks in the top 1% in both the 10-year and 15-year annualized returns.
In summary, the economy appears to be in the maturing stage, where large-cap stocks can do well and those with a growth slant can potentially do even better. Any of these three large-cap stock growth funds can make a fine addition to a diversified portfolio.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.