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Market Research - May 10, 2018

Hancock Fund Outpaces Peers on Blue Chip Bet

This year the markets have felt a lot like the Wonkavator. They’ve gone up and down — and sideways, slantways, longways, and backways. As the volatility train keeps on rolling, a lot of investors have turned their eyes away from indexing ETFs and toward mutual funds.

But this poses the question — which mutual funds? We took a deep dive on a handful to answer exactly that.

Specifically, we chose to investigate mutual funds with familiar blue chips in their holdings — the Amazons (AMZN), Microsofts (MSFT), and Googles (GOOG) of the world. We narrowed our list of funds to the large-growth and large-blend categories, a “growth and income” prospectus objective, and benchmarked against the S&P 500 Total Return (^SPXTR). We then hand-picked some recognizable names and top performers.

Our final list:

  • M:JIBCX — JHancock Blue Chip Growth 1
  • M:VQNPX — Vanguard Growth & Income Inv
  • M:JPDEX — JPMorgan Tax Aware Equity I
  • M:GCGIX — Goldman Sachs Large Cap Gr Insights Instl
  • M:DREVX — Dreyfus Fund Incorporated

We found that the John Hancock Blue Chip Growth (JIBCX) outperforms the pack by a healthy margin — it has returned 9.69% year-to-date and the next highest earner, Goldman Sachs’ GCGIX, has returned just 4.46%. JIBCX also had the highest historical Sharpe ratio (3Y lookback) at 1.28.

See comprehensive data on each of the five funds we compared in the table below.

On the low end of the spectrum, JPMorgan’s JPDEX is taking a bath in the chocolate river. JPDEX has the lowest year-to-date returns and second lowest three year alpha, 0.45% and -1.119, respectively.

The overall performance of each of these mutual funds is attributable to their holdings and the weights assigned to each of those holdings. So how do they differ?

All five funds we examined carry both Amazon (AMZN) and Microsoft (MSFT) in their top ten holdings. Quite surprisingly, only JIBCX, the top performing fund, does not carry Apple (AAPL) in its top ten; also noteworthy is that only DREVX excludes Alphabet (GOOG) from its top ten.

Things got really interesting when we dove into the weights of these top holdings.

JIBCX can attribute much of its superior performance to weighting Amazon at 10.08%; of the funds we reviewed, only JPDEX also places Amazon in the top spot, but weights it at only 4.19% — less than half that of JIBCX. The fact that JIBCX is leading this, albeit limited, pack of funds without any exposure to Apple is nothing less than extraordinary.

The chart below and accompanying table show how the top four holdings (among the five funds we examined) have performed over the last three years and their respective weights as of this article’s writing. You can see that while each stock has performed exceptionally well, JIBCX’s extra weight in Amazon has proven to be a distinguishing factor.

Another interesting insight is that Netflix (NFLX) is the only FAANG stock excluded from the top ten holdings of every fund we reviewed. (FAANG being Facebook, Amazon, Apple, Netflix, and Google — a colloquialism for the most popular tech stocks in the market).

Even with a relatively high beta, 1.14, and annualized standard deviation (3Y), 13.06%, JIBCX has an eye-popping 4.066 of alpha. All in all, if you have an aversion to Amazon, then perhaps the John Hancock Blue Chip Growth is not the fund for you — but Amazon looks and feels a lot like a Golden Ticket.

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