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The Danger Zone Pick: 11/12/12

Monday, November 12th, 2012

Check out my latest Danger Zone interview with Chuck Jaffe of MarketWatch.com.

JPMorgan Trust II: JPMorgan Large Cap Growth Fund (OLGAX) is in the Danger Zone this week.

Per the figure below, 46% of the stocks in the large cap growth category get my Attractive or better ratings. Only 17% of the stocks are dangerous or worse. Here are more details on the Best & Worst Funds in in the large cap growth category.

This means that mutual fund managers have lots of great stocks to choose from when managing their portfolios. There are many more good stocks than bad stocks in the large cap growth category. For a mutual fund to get a Dangerous or worse rating in this category, the manager must heavily weight the fund’s portfolio to the few bad stocks in the category.

And if that happens, then one must ask – why am I paying such high fees for a manager to put me in bad stocks, especially when there are so many other good stocks out there?

JPMorgan Trust II: JPMorgan Large Cap Growth Fund (OLGAX) is one of very few funds and a large portion of the 1% of Dangerous-rated AUM. And the fund’s Total Annual Costs is 3.31% versus 0.22% for its benchmark: iShares Russell 1000 Growth (IWF). Those are some really high fees for portfolio management that does not add any value. More detail in free report on OLGAX.

Figure 1: Large-cap Growth Style Landscape For ETFs, Mutual Funds & Stocks

Sources: New Constructs, LLC and company filings

Only 4% of the mutual funds in the large cap growth category get a Dangerous Rating
Only 1% of the assets in the large cap growth category are in the Dangerous-rated mutual funds.

And one of OLGAX’s top 5 holdings is Apple (AAPL), a stock I like and gets my Very Attractive Rating. Apple is in most ETFs and mutual funds. The problems with OLGAX is that too much of the rest of the fund’s portfolio is in poor stocks.

Disclosure: I own AAPL. I receive no compensation to write about any specific stock, sector, style or theme.

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3 Comments

  1. varadha says:

    Terrific, yet simple analysis. I’ve always been a fan of ROIC as a measure of capital efficiency and believe that no size/growth outperformance can replace the quest for efficiency.

    Sort of like a big gas guzzling v8 that needs ever increasing gallons of fuel to keep its engine running

  2. David says:

    But Angie’s $90 per user acquisition cost is going to go away. That’s what their approach probably is. How would their outlook be if that $90 cost dropped down to a total cost of $3 per user?

  3. David:

    That would be great, but cost per user acquisition is not something that’s very easy for a company to fix. ANGI can slash their marketing budget to the bone, but then they would stop acquiring new members. They would probably lose members in fact, as their membership renewal rate is at ~75% and declining. If they cut marketing expense by ~95% as you seem to be suggesting, ANGI might be able to eke out 1 year of slight profits, but they would start shedding members and losing money very quickly. ANGI’s only hope is to keep its marketing budget high and hope it can reach the scale and brand awareness to be able to sustain its business while scaling back marketing costs enough to turn a profit. The fact that ANGI’s revenue growth is slowing down even as its marketing costs keep increasing makes it very unlikely it will achieve that goal.

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