Opportunity remains, but check your expectations at the door. That was my message on aggressive growth funds last month, and — spoiler alert — it applies to large growth funds as well.
Let’s start at the beginning: What do I mean by growth?
I consider a growth stock one where a company is growing earnings faster than the overall market, and is generating little or no yield. Over the past several years, some growth companies have built up huge cash hoards, and a few, like Apple (AAPL), have recently given in to the pressure and started to return some of that money to shareholders in the form of dividends and hefty stock buybacks.
While profit growth defines growth stocks, it’s a different story for growth funds. In my book, a growth fund is one where the emphasis is on capital appreciation, not generating income. Some fund managers aim to accomplish this by searching for companies where profits are growing rapidly. Other managers look for companies whose assets are so undervalued that market recognition of that value will generate great price appreciation. Some commentators split this between growth and value investing, but to my way of thinking they are two sides of the same coin.
What I’m looking for in a growth fund is the ability to power a portfolio by producing long-term gains that can be banked five, 10, 20 or even 40 years into the future.
Read on to learn about three of Vanguard’s large growth fund offerings.