After the last recession, which occurred in 1990-91, large-capitalization growth funds returned 43.75 percent in 1991, far ahead of large-cap value funds and the S&P 500, according to Morningstar, Inc., Chicago. Mid-cap (52.83 percent) and small-cap (54.42 percent) growth funds did even better.
Therefore, this may be a time to invest in growth funds. When the economy is recovering, growth funds tend to do well. Profits usually rise and investors favor those companies showing robust earnings growth.
Moreover, after two disastrous years growth funds have fallen, as a percentage of investors’ portfolios, so it may be time to build up those allocations to the desired levels.
If you’re going to buy a growth fund, check its record for the past two years. As a category, for example, large-cap growth funds lost 14.5 percent and 23.6 percent in the last two years. Funds that did better (that is, had smaller losses) may offer downside protection as well as a chance to participate in a growth fund rebound.
