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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. Funds that follow more-specific mandates, like those that invest in small and mid-cap companies or sector-oriented funds are weeded out. To fine-tune what is an extremely diverse grouping of funds, we use peer groups.

That said, why is there 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, which is the best out of 20 or 30 specific peers may still be a laggard when compared to a broader group of funds. 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, ranging from index funds 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 behind than the S&P 500 Index. For the 10-year period ended December 31, 2011, the group had an annualized gain of 2.8%, while the S&P 500 Index reported a return of 2.9%. However, for the year-to-date, the Growth objective group has fallen well below the broader market, reporting a loss of 3.0% versus a gain of 2.1% for the S&P 500 Index.

For five years and three years, the group had a slight annualized loss of 0.4% and a gain of 14.3%, respectively, while the S&P 500 Index reported a loss of 0.4% and a gain of 14.0%, respectively. During the past year, the Growth objective group posted a loss of 3.0%, versus a gain of 2.1% for the S&P 500. The group has an average Risk Rank of 3, indicating an average level of risk.

One fund with a relatively strong return in 2011 is Akre Focus Fund (AKREX). This fund’s investment objective is long-term capital appreciation. Management invests in preferred stocks, warrants, options, and other equity-like instruments such as partnership interests, limited liability company interests, business trust shares, and rights and other securities that are convertible into equity securities. The fund seeks to find companies where valuations are modest and that earn higher-than-average returns on shareholders’ equity. The companies must also have managements that have a history of rewarding shareholders through dividends, and where investors have ample opportunity to reinvest excess profits at above-average rates.

Fund managers use comparative fundamental analysis to identify potential investments, such a price/earnings ratios, current ratios, operating and other profit margins, as well as stock price compared to a conservative estimate of a company’s intrinsic value. Management may also employ charting, technical, and other forms of analysis to identify investment candidates.

The fund may sell an investment when a security fails to meet its initial investment criteria, a specific event, such as an acquisition or restructuring changes a company’s fundamental operations, or a new security is judged more attractive than a current holding.

As of December 31, 2011, the fund held about 92% of its assets in equities, 4% in preferred, and 4% in government bonds. As of the same date, the fund’s top five positions accounted for 40% of assets, with about 10% of its assets in Ross Stores Inc. (ROST).

Another fund with a very good 12-month 2011 return is Dreyfus Tax Managed Growth Fund (DTMGX). This fund’s investment objective is long-term capital appreciation. 

The fund invests at least 80% of its net assets in common stocks. Management focuses on ‘blue-chip’ companies with market capitalizations exceeding $5 billion at the time of purchase, including multinational companies. The fund may also invest up to 10% of its assets in foreign organizations. Management first identifies economic sectors that it believes will expand faster than the economy over the next three to five years or longer. Then, using fundamental analysis, the fund seeks out companies within these sectors that have dominant positions in their industries and have demonstrated sustained patterns of above-average growth with an expanding global presence and a strong balance sheet.

Management employs a ‘buy-and-hold’ investment strategy, which has resulted in an annual portfolio turnover rate of below 15%. And, when a security is sold, the fund generally will select those shares bought at the highest price to minimize capital gains, unless this would produce short-term capital gains. In that case, the fund may sell those highest-cost shares with a long-term holding period.

As of November 30, 2011, the fund held about 95% of its assets in equities, with the balance in cash and equivalents. As of the same date, the fund’s top 10 positions accounted for 44% of assets, with about 8% of its assets in Phillip Morris International (PM).

A third fund with a very good return for the twelve months of 2011 is Delaware US Growth Fund (DUGAX). This fund’s investment objective is long-term capital appreciation.


The fund invests at least 80% of its net assets in common stocks. Management focuses on those companies that are believed to have long-term capital appreciation potential and are expected to grow faster than the U.S. economy. Using a bottom-up approach, the fund seeks to select securities that are believed to have large end-market potential, dominant positions in their industries, and strong free cash flow generation, and are attractively priced compared to the intrinsic value of the securities. Also considered are a company’s operational efficiencies, management’s plans for capital allocation, and its focus on shareholders. In summary, management believes that sustainable free cash flow growth, if it occurs, may result in price appreciation for a company’s stock. A stock is sold if management no longer believes it will significantly appreciate, or if there are other opportunities that appear more attractive.

As of December 31, 2011, the fund held about 91% of its assets in domestic equities, international equities & depository receipts (7%), with the balance in cash and equivalents (2%). As of the same date, the fund’s top 10 positions accounted for 52% of assets, with about 7% of its assets in Apple (AAPL).


In the table below, we have listed 10 top-performing funds through December 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

Sequoia

SEQUX

12.54

0.70

11.93

0.82

4.19

Upright Growth

UPUPX

12.38

1.63

19.70

2.28

-4.81

Akre Focus

AKREX

11.09

1.77

13.05

5.44

 

Matthew 25

MXXVX

10.45

1.70

16.67

0.10

0.77

Dreyfus Tax Managed Growth A

DTMGX

9.22

1.56

11.75

1.30

2.03

Chase MidCap Growth A

CHAMX

9.01

-2.28

8.84

-7.31

4.57

Wells Fargo Adv Growth A

SGRAX

7.97

-2.05

9.89

-5.65

8.87

Frank Value

FRNKX

7.95

0.00

11.18

-3.88

2.51

Principal MidCap Blend A

PEMGX

7.63

1.00

13.09

-3.89

3.98

Delaware US Growth A

DUGAX

7.73

1.07

11.69

0.07

2.37

Growth Objective Group

  

  

-3.03

-0.51

10.22

-8.24

-0.35