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Value Line’s Growth objective group is by far the largest group under review. It is broadly constructed on purpose, taking into consideration any fund that has a primary objective of capital growth. Weeded out are funds that follow more-specific mandates, such as capital growth by investing in small and mid-cap companies or sector-oriented funds. To fine-tune what is an extremely diverse grouping of funds, we use peer groups.

That said, why such a broad category? The main purpose is to put funds together that, by prospectus, are trying to do the same things.  While it is important to view certain funds against smaller, similar groups, it is a mistake to take them completely out of the broader construct within which they operate.  Investors should be keenly aware that a fund that is the best out of 20 or 30 specific peers may still be a laggard when compared to a broader group of competition. Unless such a fund is owned for a very specific reason, there would likely be better investment options.

Despite the objective’s title of Growth, this category can contain both growth- and value-oriented funds. In fact, there is a wide variety of funds here, spanning from the expected index funds all the way to focused funds that own just a handful of stocks. Managers can take any number of approaches to investing, too, including growth, value, growth at a reasonable price, socially focused, market-neutral, and tax minimizing strategies, or, in some cases, a combination of these.

Over the long term, the Growth objective group has performed slightly ahead of the broader market, as measured by the S&P 500 Index. For the 10-year period ended June 30, 2012, the group had an annualized gain of 5.1%, while the S&P 500 reported a return of 5.3%. For five years and three years, the group had an annualized loss of 0.5% and a gain of 14.2%, respectively, while the S&P 500 reported increases of 0.2% and 16.4%, respectively. During the past year, the Growth objective group reported a negative return of 1.2%, compared to positive return of 5.4% for the S&P 500. The group has an average Risk Rank of 3, indicating an average level of risk.

However, for the year-to-date returns, the Growth objective group was outpaced by broader market, slightly outperformed by the S&P 500 over that span. It reported a gain of 7.6%, while the S&P registered an increase of 9.5%.

One fund with a relatively strong year-to-date return through the first six months ended June 30, 2012 is Berkshire Focus Fund (BFOCX). The Berkshire Focus fund is a “non-diversified” portfolio and invests primarily in common stocks that are selected for their long-term growth potential. It concentrates its investments in the electronic technology industry, which means more than 25%, and as much as 100%, of the fund’s total assets can be invested in that particular industry. The fund will normally hold a core position of between 20 and 30 common stocks, although the number of securities held may occasionally exceed this range. In selecting investments for the fund, the investment adviser uses a “bottom-up” approach to stock selection. This approach to investing refers to a selection process in which the fund’s investment adviser looks at companies one at a time to determine if a company is an attractive investment opportunity.

The fund may invest without limitation in foreign securities and certain types of exchange traded funds. Although some of the fund’s holdings may produce dividends, interest, or other income, current income is not a consideration when selecting the fund’s investments. The adviser employs a flexible investment style and seeks to take advantage of opportunities as they arise. As a consequence of the fund’s investment strategy, it generally has a high rate of portfolio turnover.

Another fund with a very good year-to-date return is Hennessy Cornerstone Growth Fund (HFCGX). This fund’s investment objective is long-term growth of capital.

To achieve this objective, the fund invests in growth-oriented common stocks by utilizing a highly disciplined, purely quantitative formula known as the Cornerstone Growth Strategy. The growth strategy has historically selected small cap companies, but can include mid and large cap companies. Management selects the 50 common stocks from a larger universe with the highest one-year price appreciation and also meet the following criteria:

1)  Price-to-sales ratio below 1.5
   This value criterion helps to uncover relative bargains. The strategy uses sales as its guide because sales figures are more difficult for companies to manipulate than earnings and frequently provide a clearer picture of a company’s potential value.

2)  Annual earnings that are higher than the previous year
   While sales may be the best indicator of a company’s value, the growth strategy considers improved earnings to be a key indicator of a company’s financial strength.

3)  Positive stock price appreciation, or relative strength, over the past three and six-month periods
   Historically, relative strength has been one of the most influential variables in predicting which stocks will outperform the market. 

Using the growth strategy, the universe of stocks is re-screened and the portfolio is rebalanced annually, generally in the winter. Stocks meeting the growth strategy’s criteria not currently in the portfolio are purchased, and stocks that no longer meet the criteria are sold. Holdings of all  stocks in the fund that continue to meet the criteria are appropriately increased or decreased to result in an equal 2% weighting.

A third fund with a very good return through the first half of 2012 is Bright Rock Quality Large Cap (BQLIX). This fund’s investment objective is long-term capital appreciation. Under normal market conditions, the fund invests at least 80% of its net assets in equity securities of companies with large-sized market capitalizations. The fund defines large-cap companies as those companies with market capitalizations within the range of companies in the Russell 1000 ® Index at the time of investment. As of May 31, 2012, the market capitalization range of companies in the Russell 1000 ® Index was between $390 million and $535 billion.

The fund seeks to achieve its investment objective by investing primarily in common stocks of large-cap U.S. companies. In addition, the fund may invest up to 25% of its net assets in securities of foreign large-cap companies that are traded in the U.S., including companies located in emerging markets, as well as American depositary receipts. To a limited extent, the fund may sell securities short and may use derivative instruments, including options and futures contracts.  

In selecting investments for the fund, the adviser (Bright Rock Capital Management, LLC) seeks to identify high quality businesses by applying its disciplined, bottom-up fundamental research process, which takes into account a company’s history of earnings stability and growth; proprietary products, processes and/or services; leadership or competitive positions in the market or industry; balance sheet strength; and experience of management teams. The fund will invest in both growth and value stocks, and will maintain exposure across a variety of industry sectors. The adviser utilizes a proprietary quality screening methodology to determine companies that meet the adviser’s criteria for inclusion in the quality universe. 


In the table below, we have listed 10 top-performing funds through June 30, 2012 that we follow in The Value Line Fund Advisor’s database.

10 Top Growth 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

Berkshire Focus

BFOCX

19.37

-7.93

0.29

13.81

11.51

Hennessy Cornerstone Growth

HFCGX

18.44

-3.81

1.25

18.68

  

Bright Rock Quality Large Cap

BQLIX

17.05

-4.72

17.05

17.05

  

Matthew 25

MXXVX

15.37

-5.75

-1.44

17.32

2.20

Fairholme

FAIRX

15.34

-11.18

-8.81

10.49

-0.80

Touchstone Sands Capital Select Growth A

TSNAX

13.95

-8.30

-2.93

13.06

  

Legg Mason Cap. Mgmt. Opp.

LGOAX

13.29

-7.08

-7.49

13.29

  

Artisan Growth Opportunities

ARTRX

13.13

-6.69

-3.82

10.75

  

Fidelity Advisors Consumer Discretionary

FCNAX

12.15

-5.64

-0.25

12.23

1.80

Janus Forty A

JDCAX

11.73

-6.17

-4.15

10.61

1.69

Growth Objective Group

  

  

4.52

-7.06

-5.46

3.99

-1.34

  

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