First-quarter corporate earnings, for the most part, have come in better than expected. This healthy environment for stocks adds momentum to the performance of large-cap growth funds, which may continue for the foreseeable future.
Despite some downside pressure from the strong U.S. dollar and low oil prices, companies have mostly met or exceeded expectations on earnings. That supports the idea that stock prices can rise further from here.
Economic data also points to moderate growth and tame inflation, which further supports a patient hand on the part of the Federal Reserve and its low interest rate monetary policy. The housing market is also showing strength, with a healthy report on Wednesday for new home sales in March.
Even if the Fed begins raising interest rates in June, as opposed to later in 2015 or beyond, the economy and health of U.S. consumer spending still support the positive potential for large-cap growth stocks.
Best Large-Cap Growth Funds to Buy Now
Mutual funds are a great way to capture the late business cycle potential for growth of large domestic corporations. With that in mind, I’ll highlight one of the best index funds and one of the best actively-managed funds that invest in large U.S. growth companies.
Vanguard Growth Index Fund Investor Shares (VIGRX)
This passively-managed index fund invests in stocks of large U.S. companies in market sectors that tend to grow more quickly than the broad market.
VIGRX tracks the CRSP U.S. Large Cap Growth Index, which includes U.S. companies that comprise the top 85% of investable market capitalization. It includes both mid- and large-cap stocks.
Performance is outstanding for a passive fund, with performance ranks comfortably above average in the 1-year, 3-year, 5-year and 10-year returns compared to other large-cap growth funds. VIGRX beat the S&P 500 Index in all of the aforementioned periods as well.
Highlighting the outperformance of large-cap growth stocks in 2015, VIGRX has a year-to-date gain of 5.51%, whereas the S&P 500 is up 2.98%. If growth stocks continue to lead the market, VIGRX is poised to continue its premium performance.
The expense ratio for the Vanguard Growth Index Fund is a dirt cheap 0.23%. The minimum initial investment is $3,000.
Fidelity Growth Company Fund (FDGRX)
This actively-managed fund is simply one of the best-performing large-cap growth funds of the past decade. Longtime manager Steve Wymer has led the FDGRX fund to a remarkable record during his tenure. The 10-year annualized return of 12.58% beats 98% of all large-cap growth funds, and it trounces the 8.48% return on the S&P 500 Index for the same period.
Making Wymer’s performance feat more impressive, his investment style is primarily of a buy-and-hold nature, as evidenced by the low 12% turnover of holdings for the fund. This keeps costs low and helps maintain the below-average expense ratio of 0.82%.
The top sectors in FDGRX are technology, health care and consumer cyclicals. Top holdings include Apple (NASDAQ: AAPL), Salesforce.com (NYSE: CRM) and Facebook (NASDAQ: FB). The minimum initial investment for the fund is $2,500.
Although this article focuses on the strength of growth stocks in the wake of healthy corporate earnings and a moderating economy, it is important to keep in mind that growth-oriented stocks can have steeper price declines in market corrections.
Either of these two large-cap growth funds can be used by a long-term investor as a core holding in a diversified portfolio of mutual funds.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities.
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