Funds that focus on company stocks with higher-than-average profitable growth.
Investing in growth stock mutual funds can potentially yield strong returns for the investor who isn't afraid of a little volatility. These funds focus on investments in companies that have the potential to grow at a pace that outstrips the broader market. This type of asset is a counterpoint to mutual funds that hold value stocks, which typically have a longer time horizon for investing. "Investing in growth stocks, in general, is congruent with how the typical investor thinks about investing in the stock market overall," says Brandon Pizzurro, the primary portfolio manager at GuideStone Capital Management in Dallas. "You like the prospects of that company going forward, believe they will continue to grow at some sustained rate and seek to get rewarded from that growth in the form of a return on investment."
Here are seven growth mutual fund options to consider.
MFS Growth Fund (ticker: MFEGX)
MFEGX may appeal to investors interested in rapidly growing companies in the tech and financials sectors. The fund's top three holdings are represented by Microsoft Corp. (MSFT), Amazon.com (AMZN) and Visa (V). Matthew Essmann, a managing partner of Cornerstone Financial Services in Southfield, Michigan, says cost, quality and performance make the MFS Growth Fund a standout among its peers. "When looking at performance, MFEGX carries a five-year annualized total return of 14.15% and a positive alpha of 3.39," Essmann says. Alpha measures a portfolio's performance on a risk-adjusted basis, relative to the S&P 500. This fund has an expense ratio of 0.92% but that's characteristic of the higher investment costs often associated with growth stock mutual funds.
Jensen Quality Growth Fund (JENSX)
JENSX is a no-load fund that offers a diverse asset mix. Companies like UnitedHealth Group (UNH) and medical device manufacturer Becton, Dickinson and Co. (BDX) share space with Microsoft. "Unlike many of the typical growth funds, which tend to be quite volatile, this fund tends to be one of the tamer alternatives within the category," says Ronald Rough, director of portfolio management at Financial Advisory Services in Rockville, Maryland. "As a result, it tends to fare relatively well during a growth phase in the market but holds up better than the typical growth fund during the inevitable corrections and bear markets that occur." Jensen Quality Growth Fund offers an average five-year return of 12.8% with an expense ratio of 0.87%.
T. Rowe Price Blue Chip Growth Fund (TRBCX)
Blue chips describe companies that represent household names. TRBCX includes many of the stock market's best-known large-cap companies, including Amazon, Facebook (FB) and Boeing Co. (BA). The T. Rowe Price Blue Chip Growth Fund carries an expense ratio that's typical of other growth mutual funds, at 0.7%. This equity fund offers a five-year average return of 14.5% but investors should consider the overall temperature of the market. "Growth funds tend to do well in a period of slowing or stagnant economic growth since they're buying companies with consistent or fast-growing earnings," Rough says. "With GDP in the U.S. slated to come in around 2.2% for 2019, this is the type of environment when growth stocks should do well."
Vanguard Mega Cap Growth ETF (MGK)
Exchange-traded funds, or ETFs, can offer tax-efficiency and lower investment costs for growth-oriented investors who are looking beyond traditional mutual funds. MGK carries an expense ratio of 0.06%, making it a cheaper buy compared with what you'll find at other fund companies. It's heavily weighted toward tech, with just over a third of fund assets invested in tech companies, including giants such as Apple (AAPL) and Amazon. As the name suggests, this fund is centralized on mega-cap companies and as an index ETF, it's designed to track the performance of the CRSP U.S. Mega Cap Growth Index. Performance-wise, the Vanguard Mega Cap Growth ETF has done well, offering a five-year average annual return of 12.8%.
Vanguard Small Cap Growth Index Fund (VSGAX)
Small-cap companies can offer an advantage over large-caps since they tend to have more room to expand. VSGAX puts the spotlight on fast-growing small-caps, such as Burlington Stores (BURL) and Zebra Technologies Corp. (ZBRA). The Vanguard Small Cap Growth Index Fund tracks the performance of the CRSP U.S. Small Cap Growth Index, which is a broadly diversified index of U.S. small-cap growth stocks. Rough says an index fund can make sense for investors pursuing an aggressive strategy during periods of strong market growth. Index funds may be better positioned to keep pace with the market, whereas other growth funds may be left behind. VSGAX has an average five-year return of 8.8% and a low expense ratio of 0.07%.
T. Rowe Price Mid Cap Growth Fund (RPMGX)
Investors hoping to split the difference between small-caps and large- or mega-caps may like RPMGX for their portfolio. This growth mutual fund could complement an investment strategy that's lacking in mid-cap exposure. Industrials, technology and health care are the most prominent sectors. Steered by a fund manager with more than two decades of investment experience, the T. Rowe Price Mid Cap Growth Fund may be suited to investors who want a combination of growth and lower risk. The fund's five-year average annual return of 12.1% aligns with returns from comparable growth funds, as does its 0.75% expense ratio.
Schwab U.S. Large Cap Growth ETF (SCHG)
As mutual fund companies go, Schwab is an innovator in both its growth fund offerings and approach to fees. SCHG is the least expensive growth mutual fund to make the list, with an expense ratio of just 0.04%. SCHG might be attractive for bargain-seeking growth investors. Fund holdings include the usual large-cap suspects, such as Facebook and Apple, but they're joined by The Walt Disney Company (DIS) and UnitedHealth Group. The overall goal of the Schwab U.S. Large Cap Growth ETF is tracking the return performance of the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. In terms of performance, this fund offers a five-year average annual return of 12.9%.
The seven best growth stock mutual funds to buy now are:
-- MFS Growth Fund (MFEGX)
-- Jensen Quality Growth Fund (JENSX)
-- T. Rowe Price Blue Chip Growth Fund (TRBCX)
-- Vanguard Mega Cap Growth ETF (MGK)
-- Vanguard Small Cap Growth Index Fund (VSGAX)
-- T. Rowe Price Mid Cap Growth Fund (RPMGX)
-- Schwab U.S. Large Cap Growth ETF (SCHG)