uploads///Portfolio Composition of US Large Cap Equity Mutual Funds

How to Invest in US Large-Cap Equity Mutual Funds Going Forward

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Nov. 20 2020, Updated 4:18 p.m. ET

US large cap equity mutual funds

In this series, we reviewed ten US large-cap equity mutual funds and saw why they performed how they did. We looked at the invested sectors and stocks picks of each fund individually and showed you which picks worked and which didn’t.

We also compared the performances of these funds with the PowerShares QQQ Trust, Series 1 ETF (QQQ) and the iShares Russell 1000 Growth ETF (IWF).

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Portfolio composition

Information technology is the top sectoral choice of all but one (VHCOX) of these funds. One (ELGAX) has ~40% of its portfolio invested in technology stocks. Only two funds have double-digit exposure to financials (FMAGX) (FSAEX).

Opinions about consumer discretionary stocks are varied. While a couple of funds (VHCOX) (FSAEX) are not big on these stocks, four (SGRAX) (JDGAX) (VMRGX) (TWCGX) have over one-fourth of their assets invested in stocks from the sector.

US large-cap equity mutual funds going forward

Broad-based benchmark-tracking passive funds (IWF) (IVW) have done better than most of their actively managed counterparts so far in 2016. However, times may be about to turn.

Macroeconomic-focused, top-down fund managers don’t look at company specific factors when investing. Richard Bernstein, one such manager, believes that we’re entering the late phase of the business cycle and that the worst of the US corporate profit recession is behind us.

Bernstein is currently investing in financials, materials, and energy stocks. At this turn of the business cycle, cyclical stocks tend to do better. Cyclical stocks include companies from industries such as automakers, airlines, and hotels.

It’s not certain how long this phase will last. However, in the late phase that will follow, managers will generally shift focus to consumer staples (XLP), healthcare (XLV), and utilities (XLU) stocks. These are all defensive sectors.

Note that mutual funds follow a bottom-up research approach. They focus on companies rather than macroeconomic and sector trends. That said, our analysis in this series can show you whether there is a shift in their stances from a year ago.

Investing in mutual funds should be done for the long term, so an assessment of how your fund manager has done across business cycles is important to know.

For more analysis on mutual funds, please visit our Mutual Funds page.

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