Large-cap growth funds are mutual funds that, as the name implies, primarily invest in large-cap stocks that have growth potential. Companies of large-cap stocks typically have market capitalization — or the total value of all outstanding shares of stock — of between $20 billion US Dollars (USD) and $200 billion USD, as of 2010. Growth is associated more with start-ups and small-cap companies but is not exclusive to them. Although large-cap companies might be in their maturing stage, to some companies, there is always room to grow.
Mutual fund investors are often faced with numerous fund selections. A mutual fund can be growth concentrated or value focused, income driven or capital-appreciation oriented. Some funds are actively managed, and others are index funds with relatively unchanged portfolios. Based on their individual investment goals, investors should choose funds that have comparable investment strategies. Large-cap growth funds provide investors the opportunity to potentially earn above-average returns but with relatively less risk.
Growth funds in general tend to have volatile performances over time, especially when compared with funds that invest in undervalued stocks, namely value-focused funds. Stocks in growth funds normally command higher prices that incorporate investors' positive expectations about a stock's future growth. From time to time when earnings reports from growth companies miss analyst estimates, the price drop in the market is like to be steeper. It is even more so for funds that invest in smaller growing companies.
Like all growth funds, large-cap growth funds are also subject to performance swings. Pursuing growth strategies, both big and small companies are likely to hit performance bumps along the way. The defensive nature of large-cap companies with established businesses should neutralize some of the risks of seeking dedicated growth strategies, however. As a result, large-cap growth funds can be less volatile than small- or mid-cap growth funds.
Economic and market conditions affect different types of mutual funds to various degrees. Investors should choose funds accordingly to maximize investment returns but also control risks. Small-cap growth funds might be best suited when an economy is growing, but they present more downside risks as market conditions worsen. Large-cap value funds might be better positioned against economic downturns but with little upside potential after market conditions improve. By comparison, large-cap growth funds might be able to take advantage of both up and down economic conditions, providing growth as well as retaining value.
Large-cap growth funds favor longer investment horizons. Smaller companies might outgrow more established companies in certain years in the short run, but data has shown that, over longer periods of time, average returns from large-cap companies can gradually edge up as some smaller companies might fail with their risky growth strategies. When choosing large-cap growth funds over other mutual fund alternatives, investors must understand the fund’s risk-return profile, incorporate individual investment goals and consider the economic and market conditions at the time.