Has the stock market finally reached its bottom?
Well, probably not, but that doesn't mean that millions of people on and off Wall Street won't be spending countless hours trying to figure out exactly when the bottom will occur. The first five months of this year have been remarkably volatile, and with talk of recession still on everyone's lips, the big question is: When will things start to get better?
This, too, shall pass
Obviously, no one knows for sure when the economy will right itself, but if history is any indication, the stock market will find its footing at least a few months before the economy turns a corner. And while it's still up for debate whether or not we are in a recession, the average such animal has lasted roughly 11 months.
So, even if we are currently slogging our way through a recessionary period, the light at the end of the tunnel isn't too far away. We could see a market bottom later this year, so intrepid investors should prepare themselves.
But which segment of the market is likely to bounce the highest? Well, as any good stock picker knows, you need to hone in on out-of-favor sectors and stocks before the rest of the market catches on. And there's one corner of the market that has been pretty consistently ignored and beaten down for the past seven or eight years -- growth stocks.
Getting in on growth
From 2000 to 2007, the Russell 1000 Value Index posted a cumulative 68.9% gain. The tally for growth stocks? A -21.2% cumulative loss, as measured by the Russell 1000 Growth Index. Growth stocks started to shine last year, but that long-term disparity in returns means that they should have more catching up to do compared to their value-oriented cousins.
So if you want to catch the market's next shooting star before it takes off, growth stocks are likely the place to be. And one of the easiest ways to get diversified access to dozens of terrific growth stocks is through the mutual funds that love and invest in them.
But while there are hundreds of growth-oriented funds out there, all vying for your investment dollars, most of them share a major problem, one that will likely keep many of them from achieving the kind of top-notch returns they should -- a serious lack of experienced growth managers.
The Morningstar database contains roughly 538 large-cap growth funds with returns in the top third of their peer group over the past five years. But as a recent Wall Street Journal article pointed out, when you narrow the list down to only those funds with over $250 million in assets, and managers who have been on the job for more than five years, that universe is quickly whittled down to a mere 16 funds.
Since it's been proven that funds with longer-tenured managers tend to outperform those with newer management, many of these growth funds aren't likely to fully capitalize on the growth rebound once it occurs. That makes finding a good growth fund with an experienced manager all the more important.
Cream of the crop
Fortunately, there are a handful of growth-oriented funds out there that have proven they have what it takes.
One fine example, and one of the 16 funds the Wall Street Journal mentions, is American Funds Growth Fund of America (AGTHX). This fund sports a team of 11 portfolio counselors, six of whom have been with the fund for nearly a decade. Growth Fund invests in fast-growing blue-chips including Schlumberger (NYSE: SLB), Google (Nasdaq: GOOG), Microsoft (Nasdaq: MSFT), and Cisco Systems (Nasdaq: CSCO).
Right now, the fund's largest sector overweight is in media, with exposure to stocks like Yahoo! (Nasdaq: YHOO) and Time Warner (NYSE: TWX). Growth Fund's deep bench of manager talent has built one of the best track records around, with the fund beating 96% of its peers over the past 15 years and besting the S&P 500 Index by 3.0% a year during that time.
And there's more
There are other funds like it out there, funds with great management, a solid history of performance, and prospects for more. Finding funds like this is what the Champion Funds investment service is all about. Find the best funds that will make the most money, including those growth funds that are best poised to take advantage of the coming rebound.
In fact, another one of those 16 top-notch funds is a Champion Funds pick that we've designated as the best place for new money right now. You can learn about this fund superstar in the making, and all of our other fund picks, by taking a free 30-day trial today.
It's not a question of if the market will rebound, but when. If you want to get in on the next hot spot, growth is likely the way to go. So if you decide to pick up a growth-oriented mutual fund to complement your existing stock holdings, make sure you find one with a long-tenured manager. It could mean the difference between making millions and just breaking even.
Amanda Kish heads up the Fool's Champion Funds investment service. At the time of publication, she did not own any of the companies mentioned. Microsoft is a Motley Fool Inside Value selection. Time Warner is a Stock Advisor recommendation. Click here to find out more about the Fool's disclosure policy.
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