We sometimes think of big stocks as being slow growers, but in 2017 and 2018, large-cap growth stocks -- shares of established companies in growing industries -- did even better than the S&P 500 Index. That group includes Alphabet, Microsoft, Apple, and Amazon.com, to name a few.
These companies are industry leaders that are shaping the future of the world around us. It's true that growth stocks are not known for paying dividends. And they are more volatile, so they are not for everyone. But I like growth stocks for their potential, and I like the underlying companies' ability to think of products we didn't know we needed, like the Apple iPad.
The question is: Can large-cap growth stocks continue their great run? Year-to-date as of Feb. 22, the category is up 13.16% -- almost 2% more than the S&P 500. That might mean these stocks are ripe for profit-taking, or they might continue their run.
Either way, I don't have the time to research individual growth stocks to buy or sell, so when I want large-cap growth, I look to mutual funds. Here are my three go-to mutual funds for large-cap growth, and why I love them.
1. American Funds Growth Fund of America
There are a few things I like about American Funds Growth Fund of America (NASDAQMUTFUND:AGTHX), a proven fund that's been in existence since 1973. For starters, the performance is consistent. The fund has at times bested its benchmark, but when it underperforms, it's not by much. It's a fund that keeps you in the ballpark.
I also like the experienced management team. American Funds is known for having teams, not individuals, as fund managers; there are currently 13 managers overseeing this growth fund. This group approach means the managers bounce ideas off one another, leaving much less risk that one lone ranger will steer the fund in the wrong direction (think Bill Gross at Janus).
Each team member has been at the firm for at least 10 years, and some longer. Don O'Neal, the lead, has been with the fund since 1993. When it comes to investing, experience counts in my book. I want a team in place that has been through the bubbles and is battle-tested. For this reason, I'm leaning toward Don and his team this year and hoping their experience pays.
2. T. Rowe Price Blue Chip Growth
A perennial favorite and a powerhouse in the large-cap growth sector is T. Rowe Price Blue Chip Growth (NASDAQMUTFUND:TRBCX). Manager Larry Puglia has been with the fund since 1993. Looking back at this fund's performance over one, three, five, 10, and 15 years, it has outpaced its benchmark when compared with the Morningstar large-cap growth index. This is extraordinary. Part of the reason for this outperformance is that the risk is slightly higher. Morningstar classifies the fund as having above-average risk relative to its peer group. Investors should expect more risk -- and hopefully more return -- in this fund.
What I also like about this fund is that the expenses are low. TRBCX's expense ratio is 0.70% -- far below the Morningstar category average of 1.10% for 2018. If the stock market enters a low-return environment, every basis point counts, and lower fees can help.
In 2018, the Morningstar large-cap growth category was down 2.09%, but T. Rowe Price Blue Chip Growth finished the year up 2.01%. If history is any guide, this fund has shown it can perform and is a good long-term holding.
3. Vanguard PRIMECAP
Another stalwart in the large-cap growth category is Vanguard PRIMECAP (NASDAQMUTFUND:VPMCX). It combines the best of both worlds: low fees and solid performance. It's no wonder Morningstar ranks Vanguard PRIMECAP above average in returns over the past three, five, and 10 years.
The risk taken by the fund has been average over its history, as defined by Morningstar, making it a reasonable choice for moderate risk takers.
Like the American Funds Growth Fund of America, VPMCX is managed by an experienced team. The top two managers have been with the fund since the late 1980s. Though Vanguard is usually synonymous with indexing, this fund is an exception; this team is known for its stock-picking prowess. With its low fees, experienced management team, and terrific track record, Vanguard PRIMECAP is a solid choice for those looking for large-cap growth exposure.
Time will tell what 2019 brings, but if you're looking for more large-cap growth in your portfolio this year, these three funds all have the trademarks of a winner: lower-than-average fees, experienced managers, and solid track records.