A core holding for many portfolios is the large-cap value fund, an investment style so ubiquitous that there are more than 400 of them available to U.S. investors alone. As a core holding, however, these funds tend to be held over long periods of time, and thus can escape the scrutiny that more tangential holdings tend to attract.
While that wouldn’t matter if their performances didn’t vary much, that is not the case. Over the past five years, the returns from large-cap value funds have varied from an average annual gain of 4.1% to an average annual loss of 6.15%. A $10,000 investment in the best fund would be worth more than $12,200 over that period, while a similar stake in the worst-performing fund would be worth less than $7,300. Obviously, the difference between a top performing fund and a laggard is considerable.
To identify attractive large-cap growth funds, we screened for funds that had Standard & Poor’s highest five-star rank, which narrowed the field to less than 100 funds. We then eliminated all funds with less than $20 million in assets, funds designed for institutional investors, funds that are not open to new investors, funds that charge a front end load, funds with an annual expense ratio of 1% or more, and funds that require more than a $10,000 initial investment.
That left just 16 funds to choose from. Of these, we chose three with varying combinations of strong five-year performance, low annual fees, and large asset bases indicative of investor confidence.