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Value Line’s Growth objective group is by far the largest group under review. It is broadly constructed on purpose, taking into consideration any fund that has a primary objective of capital growth. Income can be a secondary objective. To fine-tune what is an extremely diverse grouping of funds, we use peer groups.

That said, why do we employ such a broad category? The main purpose is to put funds together that, by prospectus, are trying to do the same things. While it is important to view certain funds against smaller, similar groups, it is a mistake to take them completely out of the broader construct within which they operate. Investors should be keenly aware that a fund may be the best out of 20 or 30 specific peers, but can still be a laggard when compared to a broader group of competition. Unless such a fund is owned for a very specific reason, there would likely be better investment options.

Despite the objective’s title of Growth, this category can contain both growth- and value-oriented funds. In fact, there is a wide variety of funds here, spanning from the expected index funds all the way to focused funds that own just a handful of stocks. Managers can take any number of approaches to investing, too, including growth, value, growth at a reasonable price, socially focused, market-neutral, and tax minimizing strategies, or, in some cases, a combination of these.

Over the long term, the Growth objective group has performed slightly ahead of the broader market, as measured by the S&P 500 Index. For the 10-year period ended May 31, 2011, the group had an annualized gain of 3.0%, while the S&P 500 Index reported a return of 2.6%. For five years and three years, the group had annualized gains of 3.4% and 1.3%, respectively, while the S&P 500 Index reported increases of 3.2% and 0.8%, respectively.  During the past year, the Growth objective group reported a return of 26.4%, compared to 26.0% for the S&P 500 Index. The group has an average Risk Rank of 3, indicating an average level of risk. However, for the year-to-date returns, the Growth objective group has slipped just behind the broader market, slightly outperforming the S&P 500 over that span. It reported a gain of 7.5% compared with an advance of 7.8% for the aforementioned S&P.

One fund with a relatively strong year-to-date return through the months ended May 31, 2011 is Calamos Discovery Growth Fund A (CADGX). This fund’s investment objective is long-term capital appreciation. 

It pursues this goal by investing most of its assets in a diversified portfolio of equities with market capitalizations that fall within the market cap range of the Russell 2500 Growth Index (currently at $130 million to $7.1 billion). The fund may invest up to 25% of its net assets in foreign securities.
 
In pursuit of its investment objective, the fund seeks securities that, in the investment adviser’s opinion, offer the best opportunities for growth. The fund typically considers a company’s financial health, earnings and cash flow forecast, and quality of management. It seeks to lower the risks of investing in stocks by using a “top-down approach” that involves looking at the broader trends of the economy and then choosing which industries stand to benefit. After attractive industries are identified, specific companies deemed to have the best chances of outperforming the market are selected.

Another fund with a very good year-to-date return is Chase Mid Cap Growth Fund (CHAMX). This fund’s investment objective is long-term capital appreciation. 

The fund invests at least 80% of its net assets in the equity securities of mid-cap companies. Management considers a mid-cap company to be one that has a market capitalization between $500 million and $10 billion. Mid-cap stocks that the fund purchases have historically generated earnings growth in excess of 10% per year on a consistent basis. In addition, the fund may invest a portion of its assets in non-U.S. issuers through the use of American Depositary Receipts (ADRs).
 
After the fund screens for earnings growth and consistency, it considers fundamental and technical characteristics, such as liquidity, return on equity, reinvestment rate, debt level, preliminary valuation analysis, price momentum, price volatility, unusual volume patterns, and insider transactions to determine the most attractive buys. It continuously reviews prices and adjusts its targets in response to changes in stock characteristics, setting buy/sell target prices for each position.  

A third fund with a very good return through the first five months of 2011 is Performance Leaders Equity Fund A (PILZX). This fund also seeks long-term capital appreciation, but this objective is non-fundamental and may be changed by the fund trustees without shareholder approval.

Towards this goal, PILZX normally allocates at least 80% of its assets to equity securities of companies with market capitalizations greater than $500 million. The fund focuses its investments in a core group of 15-50 well-diversified stocks. The investment advisor, Trustmark, blends two types of stocks when managing its portfolio.

The first are growth stocks, which typically have higher rates of return than other stocks with similar risk characteristics. These companies may demonstrate traits such as participation in expanding markets, rising sales volume, and growth in revenues and earnings per share. Companies not meeting the foregoing criteria are also considered if special factors, such as new management, new products or changes in consumer demand are expected to result in accelerated earnings growth.

The second classification of securities the fund invests in are value stocks, or those that appear to be undervalued for reasons like heightened competition and exposure to underperforming product categories, distressed industries, or customer groups with weak demand. As a result, these stocks usually have low price-to-earnings or price-to-book ratios. Investment decisions are based upon competitive analysis and internally developed valuations systems.

Trustmark’s “bottom up” approach in selecting stocks involves looking at individual issuers against the context of broader market factors. The fund is not limited by fixed asset allocation requirements, and as a result, is permitted to include whatever mix of growth and value stocks it views as appropriate given the economic and market environments. Trustmark determines which equities have solid prospects for future stock price performance by analyzing fundamentals, areas of market expertise or dominance, franchise durability, pricing power, and quality of management. Trustmark considers companies that are “Leaders” in their respective sectors.

The fund usually will sell portfolio securities if the price of the security is overvalued, earnings are consistently lower than expected, or more favorable opportunities can be found elsewhere. Management does not consider the length of time a position is held when evaluating entry and exit opportunities.
  
In the table below, we have listed 10 top-performing funds through May 31, 2011 that we follow in The Value Line Fund Advisor’s database.

 

10 Top Growth Funds Performance

Fund Name

Ticker

% Year-to-date

Total Return

% 1 Month

Total

Return

% 3

Month

Total

Return

% 6 Month

Total

Return

% 5 Year

Total

Return

Annualized

Chase Mid-Cap Growth A

CHAMX

17.57

-0.38

8.81

21.88

5.38

Calamos Discovery Growth Fund A

CADGX

16.35

-3.06

6.82

24.05

 

BlackRock Large Cap Core Plus A

BALPX

16.16

-.048

7.42

22.53

 

R S Select Growth A

RSDGX

14.67

-0.15

8.41

20.66

 

Wells Fargo Adv Growth Fund A

SGRAX

14.56

-2.37

5.33

20.22

10.96

BlackRock Large Cap Core A

MDLRX

14.25

0.24

6.33

20.94

1.86

Mgrs Chi Eq Partners MCap Fund A

MKPAX

14.16

-2.06

5.08

21.17

4.76

Sentinel Mid Cap Value A

SYVAX

13.96

-0.19

6.88

20.06

5.70

Performance Leaders Equity A

PILZX

13.74

-2.27

5.13

19.75

1.37

Principal MidCap Blend A

PEMGX

13.73

0.53

6.35

17.21

7.18

Growth Objective Group

 

 

7.50

-1.30

2.08

14.10

3.44

 

 

At the time of this article's writing, the author did not have positions in any of the companies mentioned.