Growth stock mutual funds are those that focus mainly on value appreciation rather than dividend payout. These mutual funds invest in young companies with high growth potential. Instead of paying dividends, growth firms reinvest that money for further growth. Investors are rewarded with increases in the price of the fund.
In general, growth mutual funds involve a higher level of risk than other mutual funds. That is why it is vital to have a clear understanding of what a growth stock mutual fund is and which one(s) to choose.
You may be reading this article because you’ve heard Dave Ramsey rave about “growth stock mutual funds.” He kind of coined that phrase. According to Dave Ramsey, these are the 4 main criteria which characterize a good growth stock mutual fund:
Growth mutual funds generally invest in several different stocks which means the investor’s portfolio is diversified. This balanced distribution across various sectors is important since it makes the price of the growth mutual funds less volatile by adding a layer of safety.
In the case of growth stock mutual funds, fund managers have an active role to play. They continually evaluate and alter the stocks held by the fund. So, managers with at least 5 to 10 years of experience in the industry are preferred. Though, if a new manager is showing big gains, it’s still okay to hold a relatively small amount of your portfolio in that fund.
Investing in growth stock mutual fund implies holding the money long term, usually for decades. So, it is advisable to judge the long term rate of returns of the fund before choosing. Only funds that perform consistently should be selected.
Since growth stock mutual funds involve a lot of management activity, associated expenses are generally higher. People are more expensive than following an index. Even though, a fund with more than a 1% expense ratio is unnecessarily high. Avoiding high mutual fund fees will allow you to retire much, much earlier.
Below we’ve listed the top five performers in the growth stock mutual fund category based on the bullet points listed above.
Note – I am not getting paid to endorse any of these funds.
1. T. Rowe Price Institutional Large Cap Core Growth Fund (TPLGX)
This fund invests in common stocks of large capitalization growth companies. It has a total asset of $1.9 billion and 80% of its net assets are normally invested.
The manger chooses the companies depending upon their market capitalization and invests in stocks of 100 to 130 large capitalization companies.
This fund has generated 16.06% in the last 5 years and 8.63% in the last 10 years.
The expense ratio for this fund is 0.58% and involves above average risk.
2. Vanguard Capital Opportunity Investor (VHCOX)
This fund mainly invests in U.S. securities which have high growth potential. This growth fund invests in stocks of companies, irrespective of their scale.
Ansari, the fund manager, does research to decide which stocks he believes are going to show an extraordinary performance in a 3 to 5 year period.
This fund has generated a return of 15.14% over the last 5 years and 9.31% over the last decade.
Fund fees are average, with an expense ratio of 0.47%.
3. Vanguard PRIMECAP (VPMCX)
This fund invests in large and medium capitalization firms with above average growth potential.
Ansari is its fund manager for this Vanguard fund as well, managing it since 2007.
The fund has returned 14.50% in the last 5 years and 9.02% in the last 10 years.
Investment risk is less than average and expense ratio is 0.44%.
4. Fidelity Blue Chip Growth Fund (FBGRX)
This fund invests in large capitalization U.S. growth stocks. It has total assets of $19.26 billion and the money is distributed among 425 domestic stocks including that of Google, Apple, and Amazon. Sector wise, it mainly focuses on consumer goods, health care, and technology.
Fund manager Sonu Kalra is a well-respected analyst and fund manager.
This fund has returned 15.64% in the last 5 year period and 8.91% in the last decade.
Risk associated with this fund is at an average to below average level. This growth stock mutual fund has an expense ratio of 0.88%.
5. PRIMECAP Odyssey Growth (POGRX)
This fund invests mainly in large to mid capitalization companies. It has a total asset of $5.77 billion, distributed among 130 stocks. Its main focus areas are health care and technology sectors.
The fund has 5 managers who do research and pick up stocks with above average performance in the last 5 years. Managers are primarily investing in U.S. based stocks.
It has returned 14.03% over the last 5 years and 9.06% over the last 10 years.
Risk with this fund is at an average level. Its expense ratio is 0.63%.
These are the top 5 best performing growth stock mutual funds year after year. They all perform better than the S&P 500, a popular benchmark with investors. They all have very similar expenses, similar risks and similar returns. My advice is to choose the fund that makes you feel the most comfortable. Perhaps it’s a Vanguard fund because you enjoy using Vanguard. Or perhaps it’s a fund who’s manager you deeply respect. Or, spread your risk. Invest in all five of these growth stock funds. Split your money between them in 5 ways. Dave Ramsey and nearly every other reputable financial expert encourages a diversified portfolio. Good luck and do comment below if you have any questions!