Goldman Sachs Jumps Into ETFs
While the Dow Jones Industrial Average's member companies languished, many small firms performed well. Over the past 10 years, the average small-blend fund -- a mix of growth and value shares -- returned 6% annually, compared with a measly 0.3% for large-blend funds, according to Morningstar.
Blue chips faced hard going partly because they had become overvalued. For five straight years in the late 1990s, large stocks soared and reached outlandish levels. Meanwhile, small stocks trailed and remained at reasonable price-to-earnings ratios. When the S&P 500 collapsed in 2000, small stocks stayed in the black. Since then, small companies have led most of the time. During 2009, small-blend funds returned 32%, compared with 29% for large blend.
Can large stocks take the lead this year? Perhaps. Many blue chips seem to be reasonably priced. The average large-blend fund has a P/E ratio of 14.9, lower than small blend's 15.4. In addition, large companies are benefiting more from fast-growing emerging markets.
To find promising choices, I screened for large-cap funds that excelled in the rollercoaster markets of 2009. I looked for funds that hold multinationals and other stocks that seem poised to profit from a global economic recovery. As a final check, I limited the group to portfolios that have moderate P/Es compared to their peers.
For investors who prefer growth stocks, my choice is Alger Spectra(SPECX Quote), which returned 57% in 2009, clobbering the S&P 500 by 30 percentage points. During the past five years, the fund returned 10.3% annually, outdoing 99% of its large-growth competitors.
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