Growth stocks haven’t slowed down after leading the market forward in 2023. Following its 32-percentage-point outperformance last year, the Russell 1000 Growth Index’s 9.5% year-to-date return through February 2024 outpaced the Russell 1000 Value Index by nearly 5.7 percentage points.
Despite the rally in growth stocks, three active US large-cap growth funds in the Morningstar FundInvestor 500 suffered some of the largest outflows in 2023 and continue to shed assets in 2024. These funds have been hit hard by redemptions, but all three are proven strategies in the large-growth Morningstar Category. Let’s explore why investors should stick with these funds.
T. Rowe Price Blue Chip Growth TRBCX, which has a Morningstar Medalist Rating of Silver, saw $15.6 billion leave over the trailing one-year period through January 2024, which represented a hefty 29% of the fund’s January 2023 assets. The strategy struggled in 2022 as growth stocks fell out of favor, and it declined 38%. The fund rebounded in 2023, posting a 49% gain that beat 87% of category peers. It also sports an impressive long-term record. Over the 15 years through January 2024, its 16% annualized return outpaced the typical peer by 132 basis points. Thorough research leads the strategy to companies with strong fundamentals and competitive advantages. Indeed, nine of its top 10 holdings had wide Morningstar Economic Moat Ratings as of the January 2024 portfolio. In 2021, the strategy shifted to nondiversified status, enabling it to concentrate more on manager Paul Greene’s highest-conviction ideas. Greene took the reins as sole manager in October 2021. His record may be short, but he worked as an associate manager on this fund for two years and led T. Rowe Price Communications & Technology PRMTX from 2013 to 2020. He also benefits from a deep bench of over 100 research analysts.
American Funds Growth Fund of America AGTHX had $252 billion in assets as of January 2024, the largest in the category despite losing $15.5 billion to redemptions over the trailing one-year period. The fund’s large asset base and ownership restrictions make it difficult for small- and mid-cap companies to make an impact on the strategy. Consequently, the fund leans heavily into large-cap companies. While its size can be problematic, the strategy’s multimanager approach still gives it an edge. It is split between three Capital Group subsidiaries, 13 named managers that run individual sleeves, and various unnamed managers that oversee around a fifth of the portfolio. The named portfolio managers are an experienced group averaging 12 years on the strategy. The multimanager setup allows them to tap wide-reaching expertise from around the firm. It has led to a flexible, diversified strategy, and the sleeves represent the managers’ best thinking based on Capital Group’s strong bottom-up research. It held a Bronze rating as of January 2024.
T. Rowe Price Growth Stock PRGFX had $12.6 billion in net outflows over the trailing year through January 2024. That represented 28% of the fund’s January 2023 assets. The strategy focuses on fast-growing companies, and portfolio manager Joe Fath ventures into out-of-benchmark areas like private markets and international stocks to find opportunities. Fath is guided by fundamentals that are usually based on earnings growth rather than profitability. The fund maintains a concentrated portfolio of roughly 70 to 90 stocks. This fund was granted nondiversified status in 2021, so Fath can deploy more capital to his best ideas. The portfolio has a healthy dose of “Magnificent Seven” stocks like Microsoft MSFT, Apple AAPL, and Amazon.com AMZN, which contributed to a 36% return over the trailing one-year period. Fath has been the sole manager since 2014 and brings over 20 years of industry experience. He has access to the firm’s excellent pool of research analysts. As of January 2024, the fund earned a Medalist Rating of Silver, with its research-based approach and strong analytical support seen as long-term advantages.
This article first appeared in the February 2024 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.
