How the Cards Fell for 11 Large-Cap Mutual Funds in 2015
Performance evaluation
The Franklin Growth Fund – Class A (FKGRX) fell 2.0% in December 2015 from a month ago. In the three-month period ended December 31, the fund rose by 5.2%. In the six-month period, it fell 1.1%. In the one-year period, the fund is up 2.0%. Meanwhile, from the end of December until January 20, the fund is down 8.6%.
The fund has had a forgettable 2015. In 2015, the fund stood ninth among 11 funds in this review. Let’s look at what has contributed to the fund’s below-average performance.
Portfolio composition and contribution to returns
The FKGRX is the oldest fund in this review. It was launched in March 1948. The latest complete portfolio breakdown available for the fund is from September 2015. Thus, we will take that portfolio as our base and consider valuation changes as they stand at the end of December 2015 for our analysis. All portfolio percentages mentioned from here on refer to their weights as per changes in valuation from September to December.
Stocks from the consumer discretionary sector, the fund’s fourth largest sector in terms of portfolio composition, contributed the most to the fund’s returns in 2015. Amazon (AMZN) singlehandedly brought the sector up. Class B shares of NIKE (NKE) and The Walt Disney Company (DIS) were a very distant second and third, respectively. The sector’s contribution would have been higher if VF Corporation (VFC) and Harley-Davidson (HOG), among others, had not offset the positive contribution by all stocks except AMZN.
The healthcare sector was a distant second to the consumer discretionary sector in terms of positive contribution to returns for 2015. Eli Lilly (LLY) and Mettler-Toledo International (MTD) were the top two positive contributors. However, a substantial drag from stocks like Catalent (CTLT), Envision Healthcare Holdings (EVHC), and Bluebird Bio (BLUE) hurt the contribution from the sector.
Reasons for the fund’s below-average performance
None of the core sectors of the fund like industrials or information technology contributed to its returns in any meaningful way. And those that did, like the consumer discretionary, did not have substantial enough exposure. Further, energy dragged down the fund’s returns a substantial amount.
However, we cannot hold the portfolio composition against the managers, given their investment philosophy. Investors should note that the fund’s managers are invested for the long term. Thus, investors with a similar horizon could consider investing in the fund. However, in the medium term, the fund’s large exposure to industrials is a concern.