After a historic run, growth stocks finally hit a wall. The market’s willingness to pay handsomely for promises of future profits began to decline in 2021, but the party truly ended in 2022. Slowing economic growth, higher interest rates, and soaring inflation led investors to dump many stocks that could do no wrong 12 months earlier.
The crash was painful for some active managers, while for others it vindicated their avoidance of high-flying companies. But there were also funds that saw it as an opportunity. Buying when others are rushing to sell has typically been a prudent long-term move. Those with the foresight and courage to buy U.S. stocks in early 2009 or 2020 earned humongous returns in short order. However, investors who picked up plunging shares of fledgling internet companies in the early 2000s wound up with steep losses. How the current market will turn out is unclear, but the following funds that we rate took some of the biggest bets on a rebound based on the most recently available holdings data.
ClearBridge Aggressive Growth
This fund had regularly found itself in the large-blend portion of the Morningstar Style Box despite its name—but that changed in 2022. Longtime manager Richie Freeman retired at the end of 2021, and his replacement, Aram Green, transitioned the portfolio to reflect a more targeted growth approach. Green picked up or added to younger stocks with high revenue-growth rates, such as cybersecurity firm CrowdStrike and software company HubSpot . He also sold off the portfolio’s stub position in energy stocks and increased weightings in consumer sectors. As a result, the portfolio’s Morningstar value-growth score increased markedly in 2022, indicating a shift toward the growth style.
Because Green added to stocks that were declining, the impact of his activity isn’t readily apparent in the portfolio’s sector weightings, though they are much more evident when compared with the Russell 1000 category benchmark. For instance, the portfolio’s tech stake both began and ended 2022 with around a 35% weighting, while the benchmark’s plummeted. The timing for the strategy’s transition wasn’t ideal, as it finished near the bottom of the large-blend Morningstar Category in 2022, but it could pay off in the long term.
Allspring International Equity
Managers Dale Winner and Venkateshwar Lal operate a flexible, contrarian strategy. The two often evaluate stocks that are trading below their highs or are otherwise out of favor in hopes of capturing a rebound. Their eyes pivoted to growth stocks in 2022 amid sharp price declines. The portfolio’s weighting in tech stocks soared to a peak of nearly 14% by October 2022 from about 7% at the end of 2021. Even outside of tech, the managers added to companies with a higher growth profile, such as LONGi Green Energy, a Chinese solar power company, and contract research organization Icon PLC .
The pivot stung in 2022 as the fund trailed over 70% of its foreign large-value Morningstar Category peers. The managers may be willing to lose the battle to win the war over the long term.
Alger Mid Cap Focus
Manager Amy Zhang increased her trading activity over the past few years as markets became more volatile. Her portfolio grades out as one of the largest pivots to growth in 2022, yet the path there was jagged. For instance, she entered the year with a large underweighting to tech stocks relative to the Morningstar US Mid Growth Index but drastically increased exposure, nearly doubling the portfolio’s tech allocation within the first three months of 2022 as the market rout ensued. She then reduced exposure sharply in the subsequent three months but not by enough to offset the initial rise. Key purchases included cybersecurity firm Palo Alto Networks and software company Tyler Technologies .
Zhang also increased exposure to biotech stocks to over 9% of the portfolio by September 2022 after entering the year with 0%. Exposure to value-oriented materials stocks ebbed and flowed, first rising from a 0% allocation to 3% by June, only to be totally eliminated by August. Concerns around a potential recession led her to pivot away from these cyclical companies. Along similar lines, Zhang reduced financials and industrials holdings in 2022 and also increased exposure to utilities in the second half of the year. All told, the portfolio finished 2022 with more of a growth tilt than when it started.
Carefully consider the investment objectives, risks, charges and expenses before investing. A prospectus, obtained by calling 800-669-3900, contains this and other important information about an investment company. Read carefully before investing.
A mutual fund is not FDIC-insured, may lose value, and is not guaranteed by a bank or other financial institution.
Performance quoted represents past performance, is no guarantee of future results, and may not provide an adequate basis for evaluating the performance of the product over varying market conditions or economic cycles. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.
TD Ameritrade receives remuneration from mutual fund companies, including those participating in its no-load, no-transaction-fee program, for recordkeeping, shareholder services, and other administrative and distribution services. The amount of TD Ameritrade's remuneration for these services is based in part on the amount of investments in such funds by TD Ameritrade clients. PLEASE ALSO SEE IMPORTANT ADDITIONAL FUND FEE DISCLOSURE INFORMATION
No-transaction-fee funds and other funds offered through TD Ameritrade have other fees and expenses that apply to a continued investment in the fund and are described in the prospectus.
Mutual funds, closed-end funds and exchange-traded funds are subject to market, exchange rate, political, credit, interest rate, and prepayment risks, which vary depending on the type of fund. International investments involve special risks, including currency fluctuations and political and economic instability. Asset allocation and diversification do not eliminate the risk of experiencing investment losses. Fund purchases may be subject to investment minimums, eligibility and other restrictions, as well as charges and expenses.
1You could lose money by investing in a money market fund.Although the fund seeks to preserve the value of your investment at $1 per share, it cannot guarantee it will do so.The fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the fund's liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the FDIC or any other government agency. The fund's sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.
2You could lose money by investing in a money market fund. Although the fund seeks to preserve the value of your investment at $1 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the FDIC or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.
3You could lose money by investing in a money market fund. Because the share price of the fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. The fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the fund's liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the FDIC or any other government agency. The fund's sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.
Most mutual funds charge 2.00% on the redemption of shares (including by exchange) held for less than a certain number of calendar days. Performance figures reported do not reflect the deduction of this fee. If reflected, the fee would reduce the performance quoted. Please refer to the fund's prospectus for redemption fee information. TD Ameritrade may also charge its own short-term redemption fee.
TD AMERITRADE RISKS OF INVESTING IN FUNDS: PLEASE READ IMPORTANT ADDITIONAL MUTUAL FUND, EXCHANGE-TRADED FUND, AND CLOSED-END FUND RISK DISCLOSURES
Research and planning tools are obtained by unaffiliated third-party sources deemed reliable by TD Ameritrade. However, TD Ameritrade does not guarantee their accuracy and completeness and makes no warranties with respect to results to be obtained from their use. The Investment Profile report is for informational purposes only.
Mutual Funds: Commentary
Commentary
After a historic run, growth stocks finally hit a wall. The market’s willingness to pay handsomely for promises of future profits began to decline in 2021, but the party truly ended in 2022. Slowing economic growth, higher interest rates, and soaring inflation led investors to dump many stocks that could do no wrong 12 months earlier.
The crash was painful for some active managers, while for others it vindicated their avoidance of high-flying companies. But there were also funds that saw it as an opportunity. Buying when others are rushing to sell has typically been a prudent long-term move. Those with the foresight and courage to buy U.S. stocks in early 2009 or 2020 earned humongous returns in short order. However, investors who picked up plunging shares of fledgling internet companies in the early 2000s wound up with steep losses. How the current market will turn out is unclear, but the following funds that we rate took some of the biggest bets on a rebound based on the most recently available holdings data.
ClearBridge Aggressive Growth
This fund had regularly found itself in the large-blend portion of the Morningstar Style Box despite its name—but that changed in 2022. Longtime manager Richie Freeman retired at the end of 2021, and his replacement, Aram Green, transitioned the portfolio to reflect a more targeted growth approach. Green picked up or added to younger stocks with high revenue-growth rates, such as cybersecurity firm CrowdStrike and software company HubSpot . He also sold off the portfolio’s stub position in energy stocks and increased weightings in consumer sectors. As a result, the portfolio’s Morningstar value-growth score increased markedly in 2022, indicating a shift toward the growth style.
Because Green added to stocks that were declining, the impact of his activity isn’t readily apparent in the portfolio’s sector weightings, though they are much more evident when compared with the Russell 1000 category benchmark. For instance, the portfolio’s tech stake both began and ended 2022 with around a 35% weighting, while the benchmark’s plummeted. The timing for the strategy’s transition wasn’t ideal, as it finished near the bottom of the large-blend Morningstar Category in 2022, but it could pay off in the long term.
Allspring International Equity
Managers Dale Winner and Venkateshwar Lal operate a flexible, contrarian strategy. The two often evaluate stocks that are trading below their highs or are otherwise out of favor in hopes of capturing a rebound. Their eyes pivoted to growth stocks in 2022 amid sharp price declines. The portfolio’s weighting in tech stocks soared to a peak of nearly 14% by October 2022 from about 7% at the end of 2021. Even outside of tech, the managers added to companies with a higher growth profile, such as LONGi Green Energy, a Chinese solar power company, and contract research organization Icon PLC .
The pivot stung in 2022 as the fund trailed over 70% of its foreign large-value Morningstar Category peers. The managers may be willing to lose the battle to win the war over the long term.
Alger Mid Cap Focus
Manager Amy Zhang increased her trading activity over the past few years as markets became more volatile. Her portfolio grades out as one of the largest pivots to growth in 2022, yet the path there was jagged. For instance, she entered the year with a large underweighting to tech stocks relative to the Morningstar US Mid Growth Index but drastically increased exposure, nearly doubling the portfolio’s tech allocation within the first three months of 2022 as the market rout ensued. She then reduced exposure sharply in the subsequent three months but not by enough to offset the initial rise. Key purchases included cybersecurity firm Palo Alto Networks and software company Tyler Technologies .
Zhang also increased exposure to biotech stocks to over 9% of the portfolio by September 2022 after entering the year with 0%. Exposure to value-oriented materials stocks ebbed and flowed, first rising from a 0% allocation to 3% by June, only to be totally eliminated by August. Concerns around a potential recession led her to pivot away from these cyclical companies. Along similar lines, Zhang reduced financials and industrials holdings in 2022 and also increased exposure to utilities in the second half of the year. All told, the portfolio finished 2022 with more of a growth tilt than when it started.
Index Providers Disagree on Growth and Value
U.S. Fund Flows: Momentum Stalls in February
Fund Managers’ Responses to Silicon Valley Bank’s Implosion
How to Choose Funds for Your IRA
Morningstar Awards for Investing Excellence: Outstanding Portfolio Manager Nominees
Morningstar Awards for Investing Excellence: Exemplary Stewardship Nominees
Why We Upgraded 4 Baird Funds to Gold
The New Frontier of Active Investing
Everything Is Active! How Active? It Depends
The Top Female Portfolio Managers to Invest With Now
3rd Party Research Disclosure /public-4:48:59
Market Data Disclosure