Four Paths to Big-Cap Growth

10/12/2010 12:30 pm EST

Focus: FUNDS

Jim Lowell

Partner & Chief Investment Officer, Adviser Investments

James Lowell, editor of Fidelity Investor and the Forbes ETF Advisor, says blue-chip growth stocks are attractive in our weak economy, and he likes two Fidelity funds and two ETFs.

With fundamentals favoring not only blue-chip stocks but also the probability for a drippingly slow recovery, owning a large-cap growth fund makes fundamental and, eventually, even momentum sense, but which one should you own?

To refine my search for the best large-cap growth fund to own now, I wanted to go back in time to the last recession and the time period that followed 12 months after it had ended to see if we could find a fund that really stood out in terms of relative outperformance to its benchmark and peers.

My bias: I wanted to avoid funds that have significant overweights in financials. I also wanted to focus on US multinationals.

Fidelity Focused Stock (FTQGX—Buy): Manager Stephen DuFour runs the most concentrated large-cap fund at Fidelity—41 holdings with nearly 50% of the assets in his top ten picks, [which include]  Union Pacific (NYSE: UNP), Apple (Nasdaq: AAPL), Exxon Mobil (NYSE: XOM), Comerica (NYSE: CMA), American Express (NYSE: AXP).

Because of the holdings concentration, sector concentration is rendered moot. This is a bullish call on large-cap growth stock picking where such stock picking is most likely to be most impactful—in the concentrated portfolio of Focused Stock.

Fidelity Fifty (FFTYX)—Buy: Manager Peter Saperstone invests in 50-60 stocks of companies that Fidelity believes show high potential for growth. Foreign holdings make up 17.8% of the holdings.

The top three sectors are information technology (22.7%), consumer discretionary (19.4%), and consumer staples (13.6%). The bet on consumer discretionary and staples, which are the commodities for the global consumer, interests me greatly. 

The top ten holdings [include] Anheuser Busch InBev (NYSE: BUD), DirecTV (NYSE: DTV), MasterCard (NYSE: MA), Pfizer (NYSE: PFE), [and] Fiserv (Nasdaq: FISV).

SPDR DJ Industrial Average (NYSEArca: DIA)—Buy—seeks investment results that correspond to the price and yield performance of the Dow Jones Industrial Average. It began trading in January 1998 and has a market value of over $8 billion. The top three sectors are industrials (22.2%), information technology (16.9%), and consumer staples (14.3%). The top ten holdings [include] IBM (NYSE: IBM), 3M (NYSE:  MMM), Chevron (NYSE: CVX), Caterpillar (NYSE: CAT), and McDonald’s (NYSE: MCD).

iShares S&P 500 Growth (NYSEArca: IVW)—Buy—seeks investment results that correspond to the price and yield performance of the Standard & Poor’s 500/Citigroup Growth Index. It began trading in May 2000 and has a market value of $5 billion. The top three sectors are information technology (32.2%), health care (12.5%), and energy (11.1%). The top ten holdings [include] Apple, Microsoft (Nasdaq: MSFT), Coca-Cola (NYSE: KO), Google (Nasdaq: GOOG), [and] Cisco Systems (Nasdaq: CSCO).

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