by Tom Taulli | October 12, 2012 8:00 am
Investors know that high growth is where the gains are — and where the risk is.
For every Apple (NASDAQ:AAPL), there’s a Zynga (NASDAQ:ZNGA). For every Amazon (NASDAQ:AMZN), a Green Mountain (NASDAQ:GMCR). For every eBay (NASDAQ:EBAY), a Netflix (NASDAQ:NFLX). You get the point. Sometimes, you can chase rapid growth to outsize returns, and sometimes you can chase it right into a wall, and then the ground.
That said, it’s possible to have your cake and eat a little of it, too. Investors looking to get aggressive — but who don’t necessarily have the stomach to throw the dice all willy-nilly — can get into some high-growth ideas through mutual funds.
There’s a number of funds to choose from, so it makes sense to look across the varying types of growth opportunities, in terms of factors like market cap, sector and geographic location. Here are five such mutual funds that have proven capable of producing some home-run returns:
Type: Small-cap growth
2012 Return: 23.85%
Category Return: 11.17
Lawrence Auriana and Hans Utsch are legendary growth investors. Back in 2002, they launched a new fund, Federated Kaufmann Small Cap A (MUTF:FKASX), with a focus on small-cap operators.
As should be no surprise, it has been quite volatile. Of course, the worst came in 2008, when the fund lost 43.7%.
Yet over the past three years, FKASX has gotten its groove back. The annual average gain was about 12.35%.
Some of the top holdings include Dynavax Technologies (NASDAQ:DVAX), Cubist Pharmaceuticals (NASDAQ:CBST) and Mellanox (NASDAQ:MLNX).
Type: Mid-cap Growth
2012 Return: 19.66%
Category Return: 10.87%
The mid-cap sector can offer lots of growth potential. Just look at the PRIMECAP Odyssey Aggressive Growth (MUTF:POAGX), which has $1.6 billion in assets. Over the past three years, the fund has clocked an average gain of 15.21%.
The portfolio managers at POAGX don’t like jumping on the latest hot trend. Instead, they focus on sectors that are out of favor but poised for a growth spurt. They also have a buy-and-hold bent.
Lately, POAGX has been loading up on health care stocks, which have seen nice gains. Some of the top holdings include Pharmacyclics (NASDAQ:PCYC), Seattle Genetics (NASDAQ:SGEN) and ImmunoGen (NASDAQ:IMGN).
Type: Large-cap Growth
2012 Return: 21.12%
Category Return: 15.88%
With the focus on dividends, the large-cap stocks have seen a big run this year, beating out the small- and mid-cap categories. And one of the beneficiaries is the Touchstone Sands Capital Select Growth A (MUTF:TSNAX), which is up 22.37% for 2012.
But this is no fluke: Its average annual return for the past three years is 19.53%
TSNAX manager Frank Sands Jr. certainly isn’t afraid to ramp up the risk levels. To this end, he has a concentrated portfolio, with less than 30 stocks. He’ll also pay hefty prices for proven growth operators. Oh, and he’s not afraid to include some smaller-cap companies.
Some of his top holdings are Apple, Visa (NYSE:V), Salesforce.com (NYSE:CRM) and Google (NASDAQ:GOOG).
Type: Foreign small/mid cap
2012 Return: 19.57%
Category Return: 11.44%
Investing in small-/mid-cap foreign companies is definitely risky. But over the long term, there’s likely to be strong gains.
An example is the T. Rowe Price International Discovery (MUTF:PRIDX) fund. Over the past decade, its average annual return is 15.54%.
Portfolio manager Justin Thomson is actually bullish on China. In light of signs of slowing growth, that’s a contrarian bet. But Thomson believes the time is right to snag bargains.
But he’s also seeing attractive investments in Europe, especially Germany and the U.K.
2012 Return: 22.67%
Category Return: 11.45%
Technology is often associated with the Internet and software. But, of course, it’s much broader than this. Technology also covers areas like biotech, materials, alternative energy and even agriculture.
And yes, the Waddell & Reed Science & Tech A (MUTF:UNSCX) fund takes the expansive approach. That often means it can find overlooked opportunities trading at relatively low valuations. Over the past 10 years, UNSCX has racked up an average annual return of 12.79%.
Some of the top holdings include Alliance Data Systems (NYSE:ADS), ACI Worldwide (NASDAQ:ACIW) and Samsung Electronics.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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