Discretionary Stocks Boost the Wells Fargo Growth Fund in YTD 2016

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Performance evaluation of the Wells Fargo Growth Fund

The past six months until August 26, 2016, have been good for the Wells Fargo Growth Fund – Class A (SGRAX). The YTD and one-year periods have not been as great, but the fund has still emerged as an above-average performer in these periods.

We have graphed its performance against two ETFs: the iShares S&P 500 Growth ETF (IVW) and the iShares Russell 1000 Growth ETF (IWF). Let’s look at what has contributed to this above-average performance by the fund in 2016 so far.

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Contribution to returns

The fund management’s stock picks from the consumer discretionary sector have been of great benefit to SGRAX in YTD 2016. Specifically, Burlington Stores (BURL) has been the chief reason why the discretionary sector has done so well. Amazon (AMZN) and Dollar Tree (DLTR) have played a key role as well. Although Delphi Automotive (DLPH) and Fiesta Restaurant Group (FRGI) have contributed negatively, their combined contribution is not very large.

The information technology sector follows the consumer discretionary sector in terms of a positive contribution to SGRAX. Microchip Technology (MCHP) has been the best performer from the sector and along with Facebook (FB) and Envestnet (ENV), it has propelled the sector’s returns.

However, Alliance Data Systems (ADS), which is no longer a part of the fund’s holdings, has led the negative contributors. Other detractors include Tableau Software (DATA) and New Relic (NEWR).

Industrials have been led by Union Pacific (UNP), with sizable positive contributions coming from Waste Connections (WCN) and Kansas City Southern (KSU).

The healthcare sector is the main reason why the fund has not done better this year. Alexion Pharmaceuticals (ALXN) is well ahead of any other holding from the sector in terms of negative contribution. Regeneron Pharmaceuticals (REGN) and Ultragenyx Pharmaceutical (RARE) are among other major detractors.

Although Veeva Systems (VEEV) and VCA (WOOF) have been positive factors, they have not made a big dent in the overall negative contribution.

Investor takeaways

Early 2016 was not generous to the Wells Fargo Growth Fund – Class A (SGRAX), and the fund was a below-average performer until May. However, things have improved since then. Three of its top four invested sectors have fired for the fund. Had it not been for the sizable negative contribution from healthcare, the fund would have fared even better. The remainder of 2016 should be interesting to watch.

In the next article, we’ll look at the Alger Spectra Fund – Class A (SPECX).

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