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Mutual Funds

The Wait Is Over. Blue Chips Are Back

Three impressive ways to benefit from the revival of large, growing companies. By Katy Marquardt

Pssst. Here's a tip you should take if you don't want to leave money on the table: Get to know large companies. After spending most of this decade in the doghouse, the big guys are off and running. In the first 9½ months of 2007, funds that invest in large, fast-growing companies returned 18%, on average. That beats just about every other category. Meanwhile, small-company value funds, which topped all others for years, are also-rans, with an average gain of just 4%.

Chances are good that large-company stocks will lead the pack for several years. The Kiplinger 25 includes two excellent big-company funds: Marsico 21st Century (symbol MXXIX), up 24% in 2007 to October 15, and T. Rowe Price Growth Stock (PRGFX), up 16%. We thought you would like to know about three others that just missed the cut but are nonetheless fine funds.

A high-octane choice is Fidelity Growth Discovery. Although Jason Weiner only recently took over as manager, in February 2007, he is no stranger to this fund: He actually ran it in its early years, when it was called Contrafund II. He has also run several other diversified funds at Fidelity, as well as a couple of sector funds.

Weiner, who describes his strategy as "extremely flexible," invests in companies of any size, although he leans heavily toward the market's giants. He can also hunt abroad for firms with the best earnings-growth potential. Foreign names recently accounted for one-fourth of the $753-million fund's assets. Weiner is bullish on tech, which represented 40% of assets, and "global growers," such as Schlumberger. This year to October 15, Growth Discovery (FDSVX) returned 30%.


Another aggressive fund is Excelsior Large Cap Growth. Run by Tom Galvin, a former Wall Street strategist, the $875-million fund (UMLGX) holds only 25 to 30 stocks. Such concentration adds risk but helps boost returns when the manager is right more often than he is wrong. Moreover, Galvin, like Weiner, also holds about 40% of assets in tech stocks. So far this year, Galvin has been on a roll -- his fund gained 26% through mid October. Over the past three years, Excelsior gained an annualized 20%, beating the typical fund that focuses on large, growing companies by an average of six percentage points per year.

As befits a former strategist, Galvin assesses the big picture when shaping his portfolio. For example, in health care, he favors Allergan, the maker of Botox, and orthopedics-device firm Zimmer (see Health Stocks on the Mend). Says Galvin: "Some people say, 'Don't fight the Fed.' We say, 'Don't fight demographics.'" Beyond that, he looks for companies that have little debt on their books and are capable of generating annual earnings growth of at least 12%.

A somewhat stodgier pick is Aston/Montag & Caldwell Growth, which favors slower-growing but steadier giants. Ron Canakaris, who has steered the fund since its inception in 1994, seeks high-quality companies that can generate earnings gains of at least 10% per year. But he buys a stock only if it's selling at least 20% below his calculation of the company's true worth.

Canakaris focuses on mega-caps, or companies with the largest market capitalizations. Shares of the biggest companies have lagged for most of the decade, so the $1.9-billion fund (MCGFX) trailed its peers in each calendar year between 2003 and 2006. Over the past decade, though, the fund's annualized return of 5% matched the typical large-company growth fund, and it did so with 20% less volatility. So far this year, Montag & Caldwell is up 22%.