Aggressive Growth Fund Outperforms S&P 500 Without Relying on Big Tech Stocks

Introduction

Many growth funds have performed well this year, driven by big-name tech stocks like Nvidia, Alphabet, and Tesla. However, the Needham Aggressive Growth Fund stands out by outperforming its peers. What sets it apart is its diverse holdings, not solely relying on Big Tech stocks. According to Morningstar, the fund has beaten the Wall Street index year-to-date, with a return of around 28% compared to the S&P 500’s 18% rise. It also ranks among the top 20 funds with the highest five-year returns at nearly 17%.

About Aggressive Growth Funds

Aggressive growth funds focus on investing in growth stocks with high potential for future growth. However, they also come with higher risk. The Needham Aggressive Growth Fund, managed by John Barr, has achieved an average annual return of 11.34% since its inception in 2001, outperforming the Russell 2000 Growth index’s 8.7%.

Holdings and Picking Companies

The Needham Aggressive Growth Fund has a portfolio of 74 holdings, with the technology sector accounting for 53%, industrials for 16%, and healthcare for 4.3%. Barr believes that there are investment opportunities beyond the big tech companies. While the fund holds one mega-cap tech stock, Apple, it has reduced its position in the stock. Barr looks for companies with operational excellence, potential for significant growth, investment in new products or services, and strong management. He also considers valuation characteristics such as a margin of safety.

Investment Strategy

Barr’s investment style focuses on “hidden compounders,” companies with compound returns over many years. He believes that the key to success is holding onto these companies as they transition towards operational excellence. Most of the fund’s returns have come from companies that have successfully made this transition. The fund concentrates on smaller companies where there is less attention and better opportunities to outperform. Themes the fund has been focused on include infrastructure and the reshoring of U.S. manufacturing, with a preference for tech, life sciences, and industrials.

Conclusion

The Needham Aggressive Growth Fund has been able to outperform its peers by diversifying its portfolio and investing in a mix of growth stocks. With a focus on operational excellence and long-term growth, the fund has consistently achieved strong returns. By targeting smaller companies and identifying hidden compounders, the fund aims to capitalize on overlooked opportunities. Barr’s investment strategy, combined with the fund’s focus on infrastructure and U.S. manufacturing, positions it for potential long-term success.