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Funds in Value Line’s Growth/Income objective group place equal emphasis on capital growth and current income, or growth of income, mainly through investments in common stocks.  Although this balanced description may seem like a fine line of distinction from a fund that seeks capital appreciation with a secondary objective of income, or a fund that seeks income with a secondary objective of capital growth, it indicates an important difference.  Funds in the Growth objective group and the Income objective group both have specific first-tier goals—Growth/Income funds, meanwhile, are, in some ways, the midpoint between the other two. 

That said, the Growth & Income objective group covers a broad range of funds, and there is no particular naming convention that one can point to that differentiates these funds from those that reside in the Growth or Income objectives. Value, however, is a frequent inclusion in names of funds here. 

Options range from focus funds, which hold only a small number of stocks, to broadly diversified funds.  There are funds that take a growth-oriented approach and those that hone in on value investments.  Size is another factor that often comes into play, with funds available that tend to focus on select areas of the market cap spectrum.  Note, however, that small-cap and mid-cap funds tend to reside in the Small Cap objective group.

There are also some thematic funds in this objective group, for example several socially responsible funds make an appearance here.  In the end, there are a large number of options in the Growth/Income objective group, so investors need to ensure that they take the time to fully understand what the funds they are examining actually do to achieve their stated goals.

Over the long term, the Growth/Income objective group has been a stronger performer relative to the broader market, as measured by S&P 500 Index.  For the 10-year period ended July 31, 2010, the group had an annualized gain of 0.8%, while the S&P 500 Index reported an annualized loss of 0.8%.  For five years and three years, the group had annualized losses of 0.2% and 6.8%, respectively, while the Index reported losses of 0.3% and 6.9%, respectively. During the one-year period ended July 31, 2010, the Growth/Income objective group reported a return of 12.5%, compared with 13.8% for the S&P 500 Index.  The group has a better-than-average Risk Rank of 2, indicating that funds in this group might appeal to many investors, including those that are risk-conscious.

Year to date through July 31, 2010, the Growth/Income objective group has not performed as well as the broader market, underperforming the S&P 500 Index over that span. It reported a loss of 0.2% versus a loss of 0.1% for the Index.

One fund with a relatively high year-to-date return through the seven months ended July 31, 2010 is Franklin Rising Dividends Fund (FRDPX).  This fund’s investment objective is long-term capital appreciation. Income is a secondary objective. Preservation of capital, while not a goal, is also an important consideration.

To achieve its objectives, under normal circumstances, the fund invests at least 80% of its assets in common stocks of companies that have paid consistently rising dividends.

It seeks companies that have increased dividends in at least eight out of the last 10 years, and have not decreased dividends during that time.  It also looks for companies whose dividends have increased at least 100% over the last 10 years. However, these dividends should not amount to more than 65% of current earnings, except for utilities, so that some net income can be reinvested.  Long-term debt should be no more than 50% of total capitalization or senior debt that has been rated investment grade. These stocks should also be trading at a price-to-earnings multiple in the lower half of their P/E range for the past 10 years.

The balance of the fund’s assets is invested in stocks that pay dividends, but do not meet all of the above criteria. From time to time, the fund may invest a substantial portion of its assets in small and mid-cap stocks.

In researching companies, management uses a bottom-up approach and pursues investments employing a disciplined value-oriented strategy, often purchasing stocks that are out of favor. The fund may invest up to 10% of its assets in foreign securities.

Another fund with a very good year-to-date return is Dividend Growth Trust Rising Dividend Growth Fund (ICRDX).  This fund seeks long-term growth of capital and current income. 

To achieve these objectives, under normal circumstances, the fund invests at least 80% of its assets in common stocks of dividend-paying domestic and foreign companies whose market capitalizations are at least $500 million and that have increased their dividend payments to stockholders for each of the past 10 years or more. If a company’s stock is owned by the fund, and it doesn’t increase its common dividend from one year to the next, the stock will be sold.
The fund seeks companies that have financial stability, a strong market position with solid pricing power, effective management, prominent brand recognition, and a strong patent position.
In an adverse market, the fund may invest up to 100% of its assets in money market mutual funds or the equivalent.

A third fund with a very good return through the first four months of 2010 is Aston/River Road Dividend All Cap Value Fund (ARDEX).  This fund’s investment goals are long-term capital appreciation and high current income. 

To achieve these objectives, under normal circumstances, management invests at least 80% of its assets in dividend-paying equity securities. The fund invests in a diversified, all-cap portfolio of income-producing equity securities with yields that the portfolio managers believe will exceed the Russell 3000 Value Index. Using bottom-up, value-driven research, the fund managers invest primarily in dividend-paying common and convertible preferred stocks and real estate investment trusts. The fund may also invest in foreign securities, closed-end funds, publicly traded partnerships, and royalty income trusts.  

To manage risk, the portfolio managers employ a structured sell discipline and a strategy of diversification across market sectors, capitalization size, sovereignty, and security type.

Subscribers can find more details on these and other Growth/Income funds by visiting the subscriber section of our site.

In the table below, we have listed 10 top-performing funds through July 31, 2010 that we follow in our Fund Advisor database.

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

Franklin Rising Dividends A

FRDPX

5.41

6.36

-3.92

 

6.98

0.87

 

Hotchkis and Wiley Large Cap Value A

HWLAX

5.36

8.30

-7.54

7.17

-5.45

Royce Total Return

RYTRX

5.42

6.40

-5.48

8.43

1.87

Aston/River Road Dividend All Cap Value

ARDEX

5.20

6.60

-3.22

7.44

2.96

Dividend Growth Trust Rising Dividend Growth

ICRDX

4.95

5.64

-1.37

6.29

4.26

Meridian Equity Income

MEIFX

4.74

6.46

-5.43

8.37

1.46

Burnham Fund A

BURHX

4.58

6.80

-3.26

8.55

0.40

Fidelity Advisors Strategic Dividend & Income A

FASDX

3.91

6.90

-6.15

6.95

0.23

BlackRock MidCap Value Equity Inv. A

BMCAX

3.98

6.77

-8.98

6.77

1.56

Wright Selected Blue Chip Equity

WSBEX

3.67

5.45

-7.64

7.64

0.33

Growth/Income Objective Group

 

-0.21

6.48

-6.26

3.06

-0.22