In times of uncertainty, most investors either go to bonds or go to defensive and dividend stocks.  So, why on earth is Zacks featuring its “Top 5 Growth Mutual Funds” as its Best in Class this morning?  We took a look there, but we also wanted to dig deeper in the sector and use other data as well to see what is happening in the world of growth funds, growth ETFs, and their top holdings.  It turns out that some companies and some sectors continue to grow over and over, and there are always some investors who will use times of weakness to accumulate mutual fund shares in hard times at discounted prices for their retirement funds.  Very few investors stick with “buying when the market is getting hit” but that is what long-term investors should do if they believe that growth will outpace defensive stocks and bonds through time.

What is interesting is that Zacks noted, “…the risk involved is much lower when compared to sectoral funds and may be reduced further by funds with a conservative approach.”  These funds have the #1 rank at Zacks, which it calls “Strong Buy” ratings.  Maybe our recent survey was right, showing that investors might actually be equally looking for bargains as they are cautious.  The AAII report from last week was far more bearish.

Legg Mason ClearBridge Large Cap Growth A (SBLGX) has the majority of its funds in equities or instruments with similar features, but they are tied to the Russell 1000 Growth Index. The growth mutual fund returned 33.67% in the last one year period.  The fund has relatively new management as Peter Bourbeau has managed this growth mutual fund since 2009.  This fund is ranked with only 2-stars by rival Morningstar and it is a higher-concentration fund as the top 10 assets account for almost 37% of the total holdings.  A high-concentration of fund assets like this will create good hits and bad misses from time to time, and its one-year return is only 15.04% as a result.

Reynolds Blue Chip Growth (RBCGX) is a growth fund that has equities with a minimum of $1 billion in market cap.  The fund’s three year annualized return is 22.66%, but it also has an expense ratio of 1.80% compared to a category average of 1.31%.  The top 10 assets here come to only about 7.94% of the total assets in the fund and its one-year return is 21.91%. This fund is ranked with 4-stars by rival Morningstar.

Loomis Sayles Mid Cap Growth A (LAGRX) keeps at least 80% of its assets invested in equities and its companies invested in must have market capitalizations within the range of the Russell Midcap Growth Index.  This one has a five year annualized return of 6.79% and the top ten holdings account for 25.24% of the total assets of the fund.  Its one-year return is 30.46%.  This fund is ranked with 3-stars by rival Morningstar.

Virtus Strategic Growth A (PSTAX) keeps at least 65% of its assets in large cap stocks with market capitalizations within the range of the Russell 1000 Growth Index. The fund returned 20.92% in the last one year period.  As of February 2011, this growth mutual fund held 78 issues and its return in the last year has been 23.76%.  The top 10 holdings account for 19.56% of the total assets in this fund.  Zacks has it ranked the highest, yet Morningstar gives it the lowest ranking of only 1-star.

Invesco Van Kampen Mid Cap Growth A (VGRAX) is a growth fund tied to mid-cap equities and this fund has a ten year annualized return of 7.56%.  Its expense ratio is 1.24% versus what is a category average of 1.41% (or 1.31% noted above).  Its top 10 holdings account for 18.05% of the total assets in the fund and it has returned 20.14% over the last year. This fund is ranked with 3-stars by rival Morningstar.

When you screen the holdings of these companies, some of the common stocks that keep recurring in each are Salesforce.com, Inc. (NYSE: CRM), Priceline.com Inc. (NASDAQ: PCLN), Apple Inc. (NASDAQ: AAPL), Oracle Corporation (NASDAQ: ORCL), Wynn Resorts Ltd. (NASDAQ: WYNN), and Amazon.com inc. (NASDAQ: AMZN).

For every type of open-end mutual fund strategy, there is almost always a corresponding ETF.  Two corresponding ETFs in growth stocks are the iShares Russell 1000 Growth Index (NYSE: IWF) and the iShares S&P 500 Growth Index (NYSE: IVW).

Here you can get all of the Zacks #1 ranked mutual funds.  It is sometimes a bit odd when you see a ranking system that is so different from rivals.  On the flip-side, analysts in stocks often have opposite calls from firm to firm.  Most analysts rank Apple Inc. (NASDAQ: AAPL)

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JON C. OGG

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