Large-cap growth funds are generally considered to be safer than other stock funds because they invest in large, well-established companies. In investing, however, “safe” doesn’t mean risk free. You can still lose money if the market takes a downturn or if the companies don’t grow as expected.
Search
What are large-cap growth funds?
Learn about large-cap growth from companies offering mutual funds.
What is a large-cap growth fund?
- Large-cap growth funds invest in the stocks of larger companies. Large-cap stocks are stocks that are in the top 70% of capitalization of the equity market. The category is the biggest in terms of market share. A growth fund is a mutual fund that includes companies that are likely to have faster revenue or earnings growth than their industry peers or the overall market.
- Growth funds are divided into small-, mid-, and large-cap categories.
- Most growth funds are considered high risk and are best suited for individuals with a long-term investment horizon and healthy risk tolerance. Remember, however, that all investments involve risk, and risks include a loss of principal.
What does large-cap growth mean?
In the context of investment strategies, large-cap growth can signal a particular approach or focus for an investor or a mutual fund. It means that when choosing stocks to invest in, an investor is looking for big, well-known companies that have the potential to expand their businesses and increase their value at a faster rate than other companies. Essentially, it’s about picking stocks of larger companies that are expected to increase revenue and become more profitable.
Advantages of a large-cap growth portfolio
Large-cap companies are usually found in the market’s leading benchmark indexes, which include the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite.
- The S&P 500 Index is the benchmark. It tracks the performance of the 500 largest publicly traded companies in the U.S. across several different sectors.
- The Dow Jones Industrial Average tracks the performance of “blue chip” companies. These companies are considered to be the dominant leaders in their respective industries.
- The Nasdaq Composite is a stock market index that includes over 3,000 stocks listed on the Nasdaq stock exchange. It includes some companies in the S&P 500 and some companies in the Dow Jones Industrial Average. The NASDAQ Composite is dominated by the informational tech sector.
Individual investors cannot invest directly in an index, but they can invest in mutual funds or ETFs (exchange-traded funds) that track an index.
Some of the benefits of investing in large-cap funds:
- The underlying large-cap companies are typically household names, with solid reputations for producing quality goods and services.1
- Investing in large-caps as a group can balance out the risks of any individual stock while positioning you to benefit from overall gains in the market.1
- Large-cap stocks are better suited to weather economic downturns than mid- or small-cap stocks.1
- It’s relatively easy for investors to find and analyze public information about a large-cap fund and its underlying invested companies.
- The mature market establishment of many large-cap companies has allowed them to institute and commit to high dividend payout ratios.
- Large-cap stocks are generally less risky and are considered to be a more conservative investment choice when compared with small- or mid-cap stocks.
Investing in mutual funds that invest in large-cap companies
Large-cap stocks have a unique advantage for investors, including stability in size, stable management teams, steady dividend payouts to shareholders, and clarity in valuations. Mutual funds are an easy way to tap into expert professional management so you can reach your long-term financial goals. Here are some things to consider when investing:
Longevity
With individuals living longer and fuller lives, investors may want to consider a diversified mix of long-term growth solutions across market capitalizations and regions. Diversification does not assure a profit or protect against market loss, but it can help mitigate losses.
Volatility management
Volatility comes in all shapes in sizes, and investors may want to consider solutions offered through our NYLIFE Securities LLC registered representatives to help manage volatility and build resilient portfolios.
Frequently asked questions
An example of a large-cap growth fund would be the Vanguard Growth Index Fund (VIGAX), which aims to track the performance of the CRSP U.S. Large Cap Growth Index, a benchmark for large U.S. growth stocks. This fund invests in large U.S. companies that are expected to grow at an above-average pace, compared with other large-cap stocks. It’s made up of companies from sectors such as technology, consumer services, and healthcare, which are traditionally seen as areas with high growth potential.
Large-cap growth funds have some disadvantages: They can be volatile; they often have high price-to-earnings ratios; they may pay low (or no) dividends because profits are reinvested; they are very sensitive to economic changes (any sign of slow growth can disproportionately affect stock prices); actively managed growth funds may come with higher fees, which eat into your returns; and, at times, the market favors value stocks over growth stocks, so there may be periods in which growth funds underperform.
Large-cap growth stocks can be risky. High expectations for future growth may already be built into their stock prices, which means they can fall sharply if they don’t meet those expectations. Since these companies tend to reinvest earnings back into the business instead of paying out dividends, they can be more susceptible to market downturns. During downturns, investors may sell these stocks in favor of more stable income-generating investments, causing their prices to fall further.
People gravitate toward large-cap stocks because of their blend of stability and growth potential. Well-established companies often have robust financial foundations and experienced management teams that can navigate market changes effectively. They offer the dual benefits of possible capital appreciation and, in many cases, regular dividends, serving as a source of steady income.
RELATED CONTENT
Want to learn more about large-cap growth funds?
A NYLIFE Securities Registered Representative can help answer any questions you may have.
SUBSCRIBE
Start investing for your future.
Discover the different ways large-cap investments can help with your short- and long-term needs.
Thank you for subscribing!