483 / 772
Large-growth fund managers are stupid again.
Only
24%
beat the Russell
1000
Growth Index
for the
10
years ended
2014
. Investors have noted
the stupidity and have taken out
$29
billion from
open-end large-growth managers in the first nine
months of
2015
. (Not that performance versus
benchmark is the only factor in those flow figures.)
It wasn’t so long ago that large-growth managers
were smart. At the end of
2009
,
78%
had outper-
formed the Russell
1000
Growth. That’s a pretty
dramatic swing considering we are looking at the
10
-year trend rather than a couple of calendar
years. Large growth is unique in the extremes of
success versus the index.
There are a couple of structural reasons that the large-
growth managers swing from being Albert Einstein
to being Homer Simpson. First, this is where great
growth stories wind up. Whether it’s
Apple
AAPL
,
FB
,
AOL
, or
Amgen
AMGN
, a fast-growing
company that the market values highly will end
up in large growth. Because the Russell
1000
Growth
Index is market-cap-weighted, the biggest, most
popular stocks are included and with big weightings.
The table on this page shows how the Russell
1000
Growth Index looks today.
As you can see, growth darling Apple has an outsized
impact on the index’s performance and, therefore,
the performance of large-growth funds competing
with the index. A manager who thinks Apple will
outperform and who wants to beat the index will have
to have
7%
or more in the name. A recent Apple
rally has largely meant a loss for active management
because, even as popular as Apple is with fund
managers, not many are going to have, say,
10%
of
assets in the stock.
The current list of the index’s top holdings includes
a bunch of hugely successful companies that are the
envy of the business world. But the downsides are
that everyone knows about them and you have to pay
a big premium to own the shares. If you owned
a growth fund when the dot-com bubble burst, you
know just how painful it can be when those hyped
stocks falter.
This is the place where price risk lives. I mentioned
AOL
as an example of the extreme flops that can
inhabit the top of large growth, though more often it
is just a long disappointment like an
Intel
INTC
or
McDonald’s
MCD
.
The Large-Growth
Conundrum
Fund Reports
4
Artisan Global Opportunities
DFA US Micro Cap
T. Rowe Price High Yield
Morningstar Research
7
The Best and Worst 529 Plans
The Contrarian
10
Why Asset-Timing is Hard
Red Flags
11
Tax Season Makes These
Funds Scary
Market Overview
12
Leaders & Laggards
13
Manager Changes and News
14
Portfolio Matters
16
7 Tips for RMD Season
Tracking Morningstar
18
Analyst Ratings
Income Strategist
20
How Much Emerging-Markets
Debt Does Your Fund Have?
Changes to the 500
22
FundInvestor 500 Spotlight
23
Follow Russ on Twitter
@RussKinnel
RusselKinnel, Director of
ManagerResearch and Editor
FundInvestor
November 2015
Vol. 24 No. 3
Research and recommendatio s for the s riou fund investo
SM
Continued on Page 2
The Top 10 Stocks of the Russell 1000 Growth Index
Name
Ticker
Weighting (%)
Apple Inc
AAPL
6.27
Microsoft Corp
MSFT
1.93
Amazon.com Inc
AMZN
1.89
Facebook Inc Class A
FB
1.87
Alphabet Inc Class A
GOOGL
1.80
Alphabet Inc Class C Capital Stock
GOOG
1.76
Verizon Communications Inc
VZ
1.68
Walt Disney Co
DIS
1.67
Gilead Sciences Inc
GILD
1.49
Coca-Cola Co
KO
1.49
Data as of 09/30/2015. Note: Alphabet is Google’s new name.