How the Consumer Discretionary Sector Has Affected SGRAX in 2016

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Performance evaluation of SGRAX

The Wells Fargo Growth Fund Class A (SGRAX) had fallen by 1% year-to-date (or YTD) in 2016 as of May 27, 2016, placing it among the bottom three funds out of the ten funds under review.

We have graphed SGRAX’s performance against the PowerShares QQQ Trust, Series 1 ETF (QQQ) and the iShares Russell 1000 Growth ETF (IWF). Let’s look at what has contributed to this poor performance so far in 2016.

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Portfolio composition and contribution to returns

The healthcare sector has been a main driver of SGRAX’s negative performance in 2016. Alexion Pharmaceuticals (ALXN) has been far above any other holding in terms of negative contributions. Regeneron Pharmaceuticals (REGN) and Ultragenyx Pharmaceutical (RARE) have been among other major detractors.

Though VCA (WOOF) and Align Technology (ALGN) have contributed positively, their combined contribution has been too small to have an impact on the sector’s performance.

Information technology stocks are in a distant second place compared to healthcare. Alliance Data Systems (ADS) and Tableau Software (DATA) have been the sector’s worst performers. Positive contributions from Facebook (FB) and Microchip Technology (MCHP) have been able to reduce the overall negative contribution to some extent.

The industrials sector has done the most to reduce SGRAX’s negative returns. Waste Connections (WCN) and Kansas City Southern (KSU) have powered the sector ahead. Meanwhile, the consumer discretionary sector—another major positive contributor—has been led by Burlington Stores (BURL). The sector has also had help from Amazon (AMZN) and LKQ (LKQ).

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Comparison with QQQ

SGRAX’s healthcare sector has done worse than its counterpart in QQQ. However, for most other sectors, actively managed SGRAX has outperformed passively managed QQQ.

Investor takeaway

SGRAX has had a difficult time in 2016 so far. Its bet on healthcare stocks has backfired, and since technology stocks have been contributing negatively as well, its fate has nearly been sealed. If two of the top three sectors in which a fund invests do badly, it’s difficult for it to exit the situation unscathed.

Though consumer discretionary stocks have contributed positively to SGRAX’s returns, the amount by which the sector has helped hasn’t been enough to make up for the negative contributions of the other two sectors.

In the next article, we’ll look at the American Century Growth Fund Investor Class (TWCGX).

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