(Published 03/01/2007) With yet another year of large-cap growth funds underperforming basically every other fund category out there, fund investors are finally throwing in the towel.
Lipper estimates that investors yanked $3.2 billion out of large-cap growth funds in the first four weeks of the New Year. What’s unusual is that January is a month where fund investors put almost $40 billion into stock funds – almost $20 billion alone into funds that invest in international stocks.
There have been many calls for out-of-favor, large-cap growth funds to lead the market – notably by us in the summer of 2006 when we upgraded large-cap growth funds to a (Most Attractive) for the first time in our history. While the a stock market in general (large-cap growth in particular) has done fine since then, large-cap growth funds have not been where the big action has been.
Long-time MAXfunds readers remember how negative we were on the whole large-cap growth and tech craze in 2000 – with our anti-Janus articles and the like. We started our MAXadvisor fund investing service in early 2002 with a (Weak) rating on large-cap growth funds. As large-cap growth continued to underperform other categories, we slowly increased the rating.
Why hasn’t large-cap growth taken off yet? The last year large-cap growth was king of the hill was 1998, when these funds scored about a 30% return. In 1999, larger cap growth funds were up almost 40% - but since other categories were even hotter (these were the bubble years remember), 40% was only an average return.
Small cap value funds – the funds that have been topping the charts more or less ever since the glory days – were basically flat during 1998 and 1999. No wonder fund investors bailed and put money in large-cap growth funds. Nobody likes a boring party.
Herein lies the reason large-cap growth stocks have yet to take off: they had so much over-valuation to work off. If one asset group almost doubles in two years, and another remains the same, it can take years of the cheaper asset group outperforming the former leader before relative valuations are back in sync.
Moreover, fund investors never really bailed out of larger cap growth funds. Today many of the formerly hottest funds still have billions in assets – though asset growth has slowed or reversed at one time or another in recent years. Today larger cap growth stocks would represent excellent value and opportunity to double your money in a few years, if only fund investors had pulled out tens of billions each quarter for the last seven years or so.
Unfortunately for us contrarians, mildly out of favor is about as good as it is likely to get here. Your best relative value in the market is large-cap growth stocks (and money markets…) and we expect this category to be in the top tier for the next few years.
Category Rating: (Most Attractive) - should outperform the market and 80% of stock fund categories over the next 1 to 3 years
Previous Rating (6/30/06): (Interesting) - should outperform the market and 60% of stock fund categories over the next 1 to 3 years
Expected 12-month return: 8% (increased from 7% in our last favorite fund report)
(Published 03/01/2007) With yet another year of large-cap growth funds underperforming basically every other fund category out there, fund investors are finally throwing in the towel.
Lipper estimates that investors yanked $3.2 billion out of large-cap growth funds in the first four weeks of the New Year. What’s unusual is that January is a month where fund investors put almost $40 billion into stock funds – almost $20 billion alone into funds that invest in international stocks.
There have been many calls for out-of-favor, large-cap growth funds to lead the market – notably by us in the summer of 2006 when we upgraded large-cap growth funds to a
(Most Attractive) for the first time in our history. While the a stock market in general (large-cap growth in particular) has done fine since then, large-cap growth funds have not been where the big action has been.
Long-time MAXfunds readers remember how negative we were on the whole large-cap growth and tech craze in 2000 – with our anti-Janus articles and the like. We started our MAXadvisor fund investing service in early 2002 with a
(Weak) rating on large-cap growth funds. As large-cap growth continued to underperform other categories, we slowly increased the rating.
Why hasn’t large-cap growth taken off yet? The last year large-cap growth was king of the hill was 1998, when these funds scored about a 30% return. In 1999, larger cap growth funds were up almost 40% - but since other categories were even hotter (these were the bubble years remember), 40% was only an average return.
Small cap value funds – the funds that have been topping the charts more or less ever since the glory days – were basically flat during 1998 and 1999. No wonder fund investors bailed and put money in large-cap growth funds. Nobody likes a boring party.
Herein lies the reason large-cap growth stocks have yet to take off: they had so much over-valuation to work off. If one asset group almost doubles in two years, and another remains the same, it can take years of the cheaper asset group outperforming the former leader before relative valuations are back in sync.
Moreover, fund investors never really bailed out of larger cap growth funds. Today many of the formerly hottest funds still have billions in assets – though asset growth has slowed or reversed at one time or another in recent years. Today larger cap growth stocks would represent excellent value and opportunity to double your money in a few years, if only fund investors had pulled out tens of billions each quarter for the last seven years or so.
Unfortunately for us contrarians, mildly out of favor is about as good as it is likely to get here. Your best relative value in the market is large-cap growth stocks (and money markets…) and we expect this category to be in the top tier for the next few years.
Category Rating:
(Most Attractive) - should outperform the market and 80% of stock fund categories over the next 1 to 3 years
Previous Rating (6/30/06):
(Interesting) - should outperform the market and 60% of stock fund categories over the next 1 to 3 years
Expected 12-month return: 8% (increased from 7% in our last favorite fund report)