Even great companies can fail to live up to the hype time and again, illustrated by Apple’s poor share price performance over the last year or so.
However, while all the data points to a value approach as being the most effective way of making money in the long-term, to write off growth-focused managers would be a big mistake. Growth investing requires the fund’s management team to dig deeper into a business’s model and analyse its projections and forecasts, in order to find a company that can grow in size.
This can mean investing in a stock that is trading on a premium to its competitors and to the rest of the market.
Although a seemingly impossible task, there are a number of managers who have proven their ability to outperform using the process.
With this in mind, FE Trustnet asks industry commentators to identify some of the growth-focused funds that they rate particularly highly.
BlackRock UK Special Situations
Patrick Connolly, head of communications at AWD Chase de Vere, says one of the best UK growth funds is FE Alpha Manager Richard Plackett’s BlackRock UK Special Situations.
"Firstly, with Richard Plackett you have a well-established and proven investment manager who quite often moves down the market cap scale so that he is able to access the best-growing companies," he said.
"Also, he takes the approach whereby he looks for companies that can benefit from the emerging market growth story. You can get UK small caps that are too reliant on the UK economy, which we all know isn’t great."
"You want a growth manager who uses flexibility and, with this fund, Plackett is always looking for companies that can benefit from growing areas of the market."
Plackett has been running the portfolio since June 2004. Over that time it has returned 169.71 per cent, making it the eighth best-performing fund in the IMA UK All Companies sector.
Performance of fund vs sector since June 2004
Source: FE Analytics
The fund also boasts top-quartile performance over three and five years.
However, it has tended to be slightly more volatile than its peers during the manager’s tenure.
BlackRock UK Special Situations requires a minimum investment of £500 and has an ongoing charges fee (OCF) of 1.67 per cent.
AXA Framlington American Growth
Connolly likes growth funds for his US exposure and says that AXA Framlington American Growth is the pick of the bunch.
"The US is an area where we like growth funds and with the AXA Framlington American Growth fund you have an out and out growth portfolio," he said.
"It has high exposure to the likes of the technology sector and other growth areas which have been left behind in recent times."
"However, because of that the counter argument is that they are now looking relatively cheap in comparison and could do well."
Stephen Kelly has managed the £709m AXA Framlington American Growth fund since January 2007.
Although the fund has consistently beaten its peers in the IMA North America sector, it has struggled to outperform its Russell 1000 Growth benchmark.
It is the ninth best-performing fund in its sector over five years, with returns of 73.07 per cent – beating the sector by 16.9 percentage points.
However the index has outperformed it, returning 73.34 per cent over that time.
The fund has been less volatile than the index and the sector over five years, pushing it above both on a risk-adjusted basis, measured by the Sharpe ratio.
Kelly counts giant multi-national tech companies such as Google, Amazon and Apple as top-10 holdings.
The manager runs a fairly diversified portfolio made up of 75 stocks.
AXA Framlington American Growth has an OCF of 1.67 per cent and requires a minimum investment of £500.
Fidelity South East Asia
Bestinvest’s Jason Hollands likes Plackett’s BlackRock fund for his UK exposure; however for investors looking for a growth manager further afield, he tips Fidelity South East Asia.
"Outside of the UK, a growth-biased fund we would highlight is Fidelity South East Asia, managed by Allan Liu, which focuses on larger businesses principally in China, Hong Kong, Taiwain and Singapore," he said.
Liu has managed the £2.3bn Fidelity South East Asia fund since August 2003.
Over that time the fund has been the third-best performing portfolio in the IMA Asia Pacific ex Japan sector, with returns of 316.77 per cent. It has eclipsed the returns of its MSCI Far East ex Japan benchmark over the period, too.
Performance of fund vs sector and index since Aug 2003
Source: FE Analytics
The fund also boasts top-quartile performance over five years, with returns of 54.01 per cent, although it has underperformed over one and three years.
Fidelity South East Asia’s largest sector weighting is to financials, at 40.7 per cent. Top-10 holdings include Bank of China and China Construction Bank.
It has an OCF of 1.78 per cent and requires a minimum investment of £1,000.
Liontrust UK Smaller Companies
Fundexpert’s Damien Fahy says the best growth funds can be found in the smaller companies sectors, and he highlights Liontrust UK Smaller Companies as one of these.
"Unlike its peers, it has 36 per cent of its assets in small UK tech businesses – so much more interesting and profitable than Apple," he said.
"The fund is a true small cap fund and is not afraid to look for hidden gems within AIM stocks – currently accounting for 57.28 per cent of assets."
"The fund has returned over 24 per cent in the last 12 months, outperforming both its large and small cap peers."
Liontrust UK Smaller Companies is run by the FE Alpha Manager duo of Anthony Cross and Julian Fosh. Cross has managed the fund since 1998 and he was joined by Fosh in June 2008.
The fund is a top-quartile performer in the IMA UK Smaller Companies sector over one, three, five and 10 years.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The £152.2m Liontrust UK Smaller Companies fund has an OCF of 1.68 per cent and requires a minimum investment of £1,000.
Jupiter European
For investors looking for a growth manager in the European equity space, they could turn to FE Alpha Manager Alexander Darwall’s Jupiter European.
According to the fund’s objective, Darwall "aims to build a portfolio of world class companies that are able to sustain profit growth and margins over a long period of time".
"He looks for companies with a good track record of profitability, a proven product and business model, combined with evidence of entrepreneurial endeavour and the prospects of above-average growth opportunities."
In a recent FE Trustnet article, he explained that his strategy has little bearing on macro noise, as he looks for companies that can outperform no matter what the economy is doing.
"We target what we call special companies – those that can prosper in different economic scenarios," he explained.
"They don’t depend on a particular economic backdrop to perform, as long as they offer something unique that they can monetise, and that people want to buy."
This growth-focused approach has certainly worked for him and his investors so far.
Darwall has managed the five crown-rated Jupiter European fund since its launch in January 2001.
It is the second-best performing portfolio in the IMA Europe ex UK sector over 10 years – nearly doubling the returns of its peers over that time.
Its benchmark – the FTSE World Europe ex UK index – has returned 167.79 per cent over the same period.
Jupiter European is also a top-quartile performer over one, three and five years, and the fund has been considerably less volatile than the sector and its benchmark over the short, medium and long term as well.
It requires a minimum investment of £500 and has an OCF of 1.79 per cent.