Lux Investing

Why to invest with a multicap growth mutual fund?

Public Comments

1. less volatility and better diversification.
2. One big advantage of a multicap growth fund is that the manager is not locked into as small of a box. By that I mean that if you buy a large cap growth fund for example, the manager is going to be much more restricted as to what he/she can buy according to the prospectus. In the last few years small and mid cap have both outperformed large cap growth by a substantial margin. In theory then a multi cap manager that had the ability to buy the small and mid cap should have been able to outperform the large cap growth fund. The key of course is how good is your manager. Unfortunately there aren't enough good ones to go around. That is why many people lean toward index funds. They are cheaper and give you broader diversification. IMO what you want is about 30-40% in US stocks, 20-30% International, 10-20% specialty (ie energy or natural resources) and 20-40% Bonds (both international and US). Obviously the play in the ranges varies on your age, time frame, and risk tolerance. Edit: In response to financegal27 I do agree that a good fund manager can beat the indexes. What I said is that it is hard to find good fund managers. Contrafund is a great example as is Mike Avery and the Ivy Asset Strategy fund which I own. I said many people lean toward indexes. I did not say they were better necessarily.
3. While I agree with 90% of what Matthew S. said about the benefits of investing in the multicap growth area, I don't agree that an index fund is a better option. I don't think its that cut and dry, numerous studies have been done on active vs. passive management and there really isn't a consistent answer that validates either argument. Now that said, if you can find a great active manager its worth investing in that fund. One of the premier Multi-cap growth managers is Will Danoff, he runs the Fidelity ContraFund. He has outperformed the S&P 500 by an average of 6% since 1990. Unfortunately the contrafund is closed to new investors, but will is the perfect example of why if you can find an active manager in the asset class it makes sense to invest with him.