Investco Russell MidCap Pure Growth (PXMG) has dominated the top of our domestic stock fund list, explains Walter Frank, and industry-leading fund expert and editor of MoneyLetter.

Many actively managed mutual funds have a stated objective of investing in growth stock. But managers often have the latitude to invest in cyclical or value stocks they expect to appreciate. The idea behind the Invesco Pure Style indexes is to "achieve style accuracy" that removes any style overlap.

Many style methodologies take a parent index, identify component stocks as value or growth, assign them to the relevant sub-indexes, and weight the components by market cap.

Market cap weightings inherently creates a bias to the larger stocks, and may thus favor overvalued stocks. For the S&P 500, about one-third of components were classified as style ambiguous. Hence, as of March 2018, the S&P Value Index and the S&P Growth Index had 177 total holdings in common.

Enter the S&P Pure Style methodology, a smart beta approach that screens stocks by fundamental factors. Value factors include price, and sales and earnings multiples, while growth factors include price, and sales and earnings momentum.

Stocks are then assigned a style score and weighted by score. Stocks with weak or no style scores are excluded. The process of weighting a stock by its score eliminates the link between stock price and portfolio weight. 

The targeted focus on growth and value offers the potential for outperformance in markets where a particular style is in favor. The converse, of course, is true as well.

Invesco Russell MidCap Pure Growth holds 94 stocks with about 25% of assets in its top ten holdings. Within the top ten, the best performers are technology firms Universal Display (OLED) and Ubiquiti Networks (UBNT) — up 82.1% and 72.4%, respectively.

Other top ten holdings with gains of at least 50% are Chipotle Mexican Grill (CMG), Paycom Software (PAYC) and ServiceNow (NOW). The fund's returns of 37.2% and 6.1% in 2017 and 2018, respectively, outpaced more than 95% of Morningstar’s Mid Cap Growth category. In 2019 through May 3, its 31.2% gain bests 93% of its peers.

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