By Todd Rosenbluth, CFRA
Unlike products passively tracking an index-based value approach, active fund alternatives can hold stocks that appear attractively valued to living, breathing managers, regardless of their growth attributes. With growth stocks like Apple (AAPL) and Alphabet (GOOGL) leading many value constituents thus far in 2017 even following a pullback Friday, this flexible active approach has been rewarding.
AAPL is up nearly 29% in 2017, even after a Friday selloff. The tech heavyweight held its annual developers conference last week and CFRA equity analyst Angelo Zino views positively enhancements to iOS and a much smarter Siri. Zino thinks the most notable iOS updates announced were a redesigned App Store, new Map features – mall/airport floor plans and lane guidance — new camera features, and an augmented reality developer platform. AAPL also revealed a mostly internal refresh to MacBooks, a new 10.5 inch iPad Pro and HomePod, a new Siri-based home speaker system, at $349, which Zino expect to sell well given superior sound quality, despite being priced above peers.
Meanwhile, GOOGL is up 22% despite pulling back Friday. CFRA equity analyst Scott Kessler downgraded the stock to buy from strong buy in early June, but sees healthy sustainable growth, driven by mobile and YouTube. He also notes Alphabet has more emerging opportunities related to cloud and self-driving car and potential gains related to artificial intelligence and machine learning.
Growth stocks Apple and Alphabet are constituents of the S&P 500 and Russell 1000 Growth indices, subsets of broader, well-known benchmarks used by active managers.
In ranking equity mutual funds, CFRA incorporates holdings-level analysis with traditional mutual fund attributes related to its relative performance record and costs. Some of this year’s outperforming large-cap value mutual funds are ranked favorably to CFRA in part because they hold appealing growth stocks such as Apple and Alphabet.
Fidelity Blue Chip Value Fund (FBCVX) was up 5.0% thus far in 2017, ahead of the S&P 500 Value index, aided by top-10 holdings in AAPL and GOOGL as of the end of the first quarter. Such positions helped to counterbalance traditional value stocks US Bancorp (USB) and Wells Fargo (WFC) that lagged in 2017. FBCVX has an above-average three-year total return, while incurring below-average volatility.