Large-cap funds are a safe option for risk-averse investors. These funds have exposure to large-cap stocks, providing solid long-term performance history, and offering more stability than what mid-caps or small-caps offer. Most often, the large-cap funds tend to duplicate benchmark indexes like the S&P 500. These funds are ideal for investors with a long-term investment timeline.
Generally, companies with a market capitalization of more than $10 billion are considered large-cap. However, market cap in terms of mutual funds does not reflect the size of the fund’s assets. Instead, it is an indication of what type of securities the fund invests in. Large-cap funds can be classified under growth, value, or blend funds; each has their own fund objective, and caters to different investors.
Let’s look at what each has to offer investors.
When capital appreciation over the long-term takes precedence over dividend payouts, growth funds become a natural choice for investors. These funds focus on realizing an appreciable amount of capital growth by investing in companies whose value is projected to rise over the long-term.
A relatively higher tolerance to risk, as well as the willingness to park funds for the longer term, is necessary when investing in these securities. This is because they may experience relatively more fluctuations than other fund classes.
Investors looking for bargains, i.e., stocks at a discount, should consider investing in value funds. Value funds are the ones that pay dividends. Thus, investors not only get to buy securities at a discount, but they also get a steady income or yield. Reinvesting the income is ideal for investors who are keen on value investing but are not looking for current income.
Blend funds are a type of equity mutual fund which holds a mix of value and growth stocks in its portfolio. Blend funds are also known as “hybrid funds.” Blend funds aim for value appreciation by capital gains, and offer an amalgamation of what growth and value funds contain to present to investors.
These funds provide an alternative option for investors who are looking to diversify investments into growth and value assets. Also, blend funds are hugely diversified because they hold a large number of assets to cover both growth and value options.
3 Funds to Buy
Below are the top large-cap funds in each category.They carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy) as we expect the funds to outperform its peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund.
T. Rowe Price Blue Chip Growth Fund (RRBGX - Free Report) is a fund that aims to provide long-term capital growth. It invests at least 80% of net assets in common stocks of large- and medium-sized blue chip companies that have the potential for above-average growth in earnings and are well established in their respective earnings.
The fund has returned 12.87% and 11.20% over past three and five years, respectively, and has a total net asset base of $530.98 million. RRBGX carries no sales load but has a higher expense ratio of 1.24%.
Payden Equity Income (PYVLX - Free Report) invests most of its assets in large-cap value stocks that have high dividend yields. The fund also invests in other income producing equity securities that may include exchange-traded common stocks and REITs. The fund mostly invests in domestic securities. A maximum of 30% of its assets may be invested in non-US securities.
PYVLX has annualized returns of 9.53% and 11.30% over the last three and five years, respectively. The fund carries no sales load and has an expense ratio of 0.8%. Its net asset base is $281.16 million.
The Fidelity Magellan Fund (FMAGX - Free Report) usually invests in large blend companies. The objective of this fund is to seek capital appreciation, and it primarily invests in common stocks of domestic and foreign issuers as well as in either 'growth' stocks or 'value' stocks or both.
FMAGX holds a net asset basis of $12.254 billion, and has returned 11.77% and 7.81% over the past three and five years, respectively. The fund carries no sales load, with an expense ratio of 83 basis points a year.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank in our Mutual Fund Center.