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Funds in Value Line’s Growth/Income objective group place equal emphasis on capital growth and current income, or growth of income, mainly through investments in common stocks. Although this balanced description may seem like a fine line of distinction from a fund that seeks capital appreciation with a secondary objective of income, or a fund that seeks income with a secondary objective of capital growth, it indicates an important difference. Funds in the Growth objective group and the Income objective group both have specific first-tier goals—Growth/Income funds, meanwhile, are, in some ways, the midpoint between the other two. 

That said, the Growth & Income objective group covers a broad range of funds, and there is no particular naming convention that one can point to that differentiates these funds from those that reside in the Growth or Income objectives. Value, however, is a frequent inclusion in names of funds here. 

Options range from focus funds, which hold only a small number of stocks, to broadly diversified funds. There are funds that take a growth-oriented approach and those that hone in on value investments. Size is another factor that often comes into play, with funds available that tend to focus on select areas of the market cap spectrum. Note, however, that small-cap and mid-cap funds tend to reside in the Small Cap objective group.

There are also some thematic funds in this objective group; for example, several socially responsible funds make an appearance here. In the end, there are a large number of options in the Growth/Income objective group, so investors need to ensure that they take the time to fully understand what the funds they are examining actually do to achieve their stated goals.

Over the long term, the Growth/Income objective group has been an above-average performer relative to the broader market, as measured by S&P 500 Index. For the 10-year period ended April 30, 2011, the group had an annualized gain of 3.1%, while the S&P 500 Index reported an annualized gain of 2.8%. For five years and three years, the group had annualized returns of 2.3% and 1.6%, respectively, while the Index reported gains of 2.8% and 1.5%, respectively. During the one-year period ended April 30, 2011, the Growth/Income objective group reported a return of 16.4%, compared with 17.2% for the S&P 500 Index. The group has a better-than-average Risk Rank of 2, indicating that funds in this group might appeal to many investors, including those that are risk-conscious.

Year to date through April 30, 2011, the Growth/Income objective group has not performed as well as the broader market, underperforming the S&P 500 Index over that span. It reported a return of 8.6% versus a gain of 9.1% for the Index.

One fund with a relatively high year-to-date return through the seven months ended April 31, 2011, is Integrity Growth & Income Fund (IGIAX). This fund’s primary investment objective is long-term growth of capital with dividend income as a secondary objective. 

To achieve its goals, the fund invests primarily in domestic common stocks, balancing its investments between growth and dividend-paying equities, depending on which offer the most value. Management may invest in companies of any size.

The fund determines sector weightings using economic and market forecasts. A bottom-up approach is then used to select individual companies within each sector. Factors such as revenue and earnings growth, dividend yield, cash flow growth rate, price-to-earnings and price-to-cash flow multiples, strength of the balance sheet, and stock price momentum are all considered.

The fund also evaluates potential investments using ethical investment criteria. These include: fairness of employment policies and labor relations; involvement in the community; efforts to minimize the impact on the environment and to prevent unnecessary animal suffering. In addition, the fund attempts to avoid investing in companies involved in gambling, alcohol, or tobacco.

The fund will consider selling a security if its valuation target is achieved or its business fundamentals have deteriorated.


Another fund with a very good year-to-date return is O’Shaughnessy Enhanced Dividend Fund (OFDAX). This fund seeks long-term capital appreciation and income. 

To achieve these objectives, it invests at least 80% of its assets in dividend-producing securities. Such securities include common stocks and other equity securities of medium-to-large capitalization companies listed on U.S. exchanges, including depository receipts of foreign based companies. The fund may also invest up to 25% of total assets in small-capitalization companies and up to 10% in real estate investment trusts and exchange-traded funds.

Management uses a bottom-up strategy in selecting securities, studying each company’s average annual sales, cash flow, market capitalization, and volume. Then, the fund  researches historical dividend data to determine securities with prospects for high yield-growth.

Stocks are sold when they no longer meet the fund’s investment criteria, due to portfolio rebalancing, or when the fund wants exposure to more attractive sectors.

A third fund with a very good return through the first four months of 2010 is Fifth Third Structured Large Cap Plus Fund A (KNVIX). This fund’s investment goals are long-term capital appreciation and current income. 

To achieve these objectives, management invests at least 80% of its assets in equity securities of large-capitalization companies. The fund may also sell securities short. The ability to short underperforming stocks is what accounts for the “Plus” in the fund’s name. The fund’s short positions will generally range between 0% and 50%, with a target of 30% of assets.

Management uses a proprietary multi-factor model to rank stocks, both across the fund’s investment universe and on a sector-specific basis, then screens out those companies facing financial distress. Management then ranks the stocks on the basis of valuation factors, earnings quality, financial discipline, and investor sentiment.

The fund may sell a stock if its model score deteriorates significantly, an issue becomes financially distressed, or if market developments like accounting irregularities or a large deterioration in sentiment are not reflected in the model.
If deemed necessary, the fund may temporarily invest up to 100% of its assets in short-term debt securities.

In the table below, we have listed 10 top-performing funds through April 30, 2011 that we follow in our Fund Advisor database.

 

10 Top Growth/Income Funds Performance

Fund Name

Ticker

% Year-to-date

Total Return

% 1 Month

Total

Return

% 3

Month

Total

Return

% 6 Month

Total

Return

% 5 Year

Total

Return

Annualized

ING Corporate Leaders Trust B

LEXCX 

14.59

3.75

10.03

 

22.39

6.43

 

Integrity Growth & Income A

IGIAX 

14.15

2.64

9.77

24.99

5.31

O’Shaughnessey Enhanced Dividend A

OFDAX 

13.97

4.87

10.35

14.93

 

TIAA-CREF Mid-Cap Growth Retail

TCMGX 

13.15

3.98

10.98

23.37

5.71

Wright Selected Blue Chip Equities

WSBEX 

12.98

2.00

10.64

22.78

4.76

Fifth Third Structured Large Cap Plus A

KNVIX 

11.90

3.67

9.02

19.68

-2.44

Allianz NFJ Flex-Cap Value A

PNFAX 

11.81

2.99

9.02

19.13

0.00

HighMark Value Momentum A

HMVLX 

11.63

3.60

7.03

19.80

1.75

Hancock Horizon Value A

HHGAX 

11.62

3.04

9.35

18.66

1.72

Alliance Bernstein Focused Growth & Income A

ADGAX 

11.47

2.48

7.63

16.64

3.48

Growth/Income Objective Group

 

8.61

2.80

6.42

15.63

2.29

 

 

 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.