The Hottest Funds for 2012
In this three-part article series, we're taking a look at some first-rate actively managed mutual funds that are set to light up the scene in 2012. I've zeroed in on domestic large-cap funds, given their generally more favorable valuations as compared to small-cap stocks and funds. In Part 1 of the series, I highlighted two winning dividend-focused funds that investors might want to examine more closely. And in Part 2, we looked at two top-tier value-leaning funds for the new year. In the final installment of this series, I'll provide the inside scoop on two of the best large-cap growth funds that you might want to consider adding to your portfolio for the coming year.
Fidelity Contrafund (FCNTX)
As a general rule, Fidelity doesn't let the grass grow under most of its managers' feet, switching around its management lineup on a regular basis. That's part of what makes Fidelity Contrafund so special -- manager Will Danoff has been on the job here for more than two decades, a rarity in the Fidelity world. And in that time, he has produced some truly amazing results -- Contrafund currently ranks in the top 7% of all large-cap growth funds over the past 15-year period. In that time, the fund has put up an 8% annualized return, versus 5.3% for the S&P 500 index. And while this fund is certainly a giant with more than $73 billion in net assets, it still has room to grow despite not being as nimble as it once was.
Danoff looks for fast-growing names with strong and improving earnings, but there's a wide range of "growth" stocks here, as evidenced by the fund's sprawling 400 holdings. Danoff isn't wedded to traditional growth names -- the portfolio has a pleasing mix of higher-octane plays alongside more staid consumer names. So you'll find typical big-name growth stocks such as Apple (NAS: AAPL) and Google (NAS: GOOG) alongside stalwarts like McDonald's (NYS: MCD) .
As a result, the fund retains a more moderate growth profile. That means it won't end up at the top of the charts in more speculative, growth-led environments, but it will also hold up better in downturns. Given that 2012 is likely to be yet another year of slow economic growth, Contrafund's restrained growth profile is an ideal fit to provide capital appreciation while limiting downside risk.
Perhaps as a function of the fund's large size, Danoff frequently ventures overseas in search of opportunities -- at last glance, roughly 15% of the portfolio was invested in fast-growing foreign names such as Canadian doughnut purveyor Tim Hortons (NYS: THI) . Expenses are reasonable here, at 0.92%, and turnover is just 46% a year, about half the 85% figure of the average large-cap growth fund. You shouldn't expect Fidelity Contrafund to be a turbo-charged growth fund, but you should expect it to provide steady, consistent returns with generally lower levels of risk, making it an excellent anchor for the growth portion of any investor's portfolio.
T. Rowe Price Blue Chip Growth (TRBCX)
Another fund that invests with a similar, middle-of-the-road growth style is T. Rowe Price Blue Chip Growth. Manager Larry Puglia has put in more than 18 years with the fund, seeking out industry-leading firms with entrenched competitive advantages, consistent earnings, strong free cash flow, and solid management teams. And while Puglia keeps an eye on valuations, he isn't afraid to pick up more richly valued names if he likes a stock's growth story. For example, both Amazon.com (NAS: AMZN) and priceline.com (NAS: PCLN) land in the fund's picks because Puglia likes the Internet-based business models, low inventory, and high levels of profitability these two firms possess. Even with spicier picks like these thrown into the mix, the overall portfolio remains remarkably high-quality.
T. Rowe Price Blue Chip Growth, like many T. Rowe funds, isn't a highflier. Over the past decade and a half, the fund has returned 5.4% on an annualized basis, landing it just outside the top third of its peer group. But in recent years, the fund has tended to outperform in heady bull markets like 2007 and 2009 while lagging in down years such as 2008.
That gives investors a hint that while the portfolio is careful to maintain its high-quality profile, Blue Chip Growth is definitely more of a growth-oriented investment option, and they should be prepared for it to underperform slightly in challenging bear markets. However, given the outlook for 2012, a fund like this should be able to capitalize on a slow-growth economy in which financially stable blue chips tend to outperform.
Ultimately, this fund is a solid option for growth investors who are willing to hold on during market downswings. Blue Chip Growth would also make an excellent complement to a more value-oriented large-cap fund. With a low 0.77% expense ratio, this fund has less of a fee hurdle to overcome than most actively managed large-growth options, which means better returns for fundholders. This fund won't win any awards for being showy, but it will provide solid long-term results.
2012 promises to be a year of continued challenge, but also one of opportunity for investors who know where to look. Domestic large-cap stocks are on track to turn in strong relative performance next year, so don't wait until the new year to beef up this portion of your mutual fund portfolio.
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At the time this article was published Amanda Kishis the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. Amanda owns shares of Fidelity Contrafund.The Motley Fool owns shares of Apple, Google, and Amazon.com.Motley Fool newsletter serviceshave recommended buying shares of Apple, Google, McDonald's, Tim Hortons, Amazon.com, and priceline.com, as well as creating a bull call spread position in Apple. Tryany of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.