Can MFEGX Continue to Post Big Gains Ahead? – May 14, 2019

MFS Growth Fund Class A (MFEGX Free Report) , by virtue of its investment objective, could be well-positioned for gains ahead. The $21.8 billion fund’s top holdings include equity securities of large-capitalization domestic companies. The fund is one of the top-performers among MFS funds’ U.S. diversified portfolios for periods as long as a decade.

What makes this Zacks Mutual Fund Rank #1 (Strong Buy) fund lucrative is its market-beating track year to date. MFEGX has registered gains of 17.4%, beating S&P 500’s 12.2%, Dow Jones’ 8.6% and the tech-laden Nasdaq’s 15.2% growth since the beginning of 2019.

This unprecedented growth could be a result of the fund’s investment objective. The fund’s advisors, Eric B. Fischman and Paul J. Gordon, mostly focus on investing the fund’s assets in stocks of companies that have above-average earnings growth potential than other growth companies.

Secondly, the fund’s 82 holdings as of March 2019, had strong pricing power, per an Investor’s Business Daily report in April, cited Gordon. According to him, pricing power indicates that the company’s products and services have something different to offer to consumers and businesses. The fund mostly focuses on stable or growing companies in growing industries.

Technology, Retail and Business Services in Top Holdings

The fund’s top three holdings comprise Microsoft, and Visa with the largest portfolio weight (6.65%) allocated to technology giant Microsoft. All three companies reported impressive Q1 earnings.

Microsoft’s third-quarter fiscal 2019 earnings of $1.14 per share beat the Zacks Consensus Estimate of $1.00 per share because of its dominance in the desktop PC market and its products and services in the cloud computing industry. According to the Zacks Analyst report, the enterprise refresh cycle, new subscription model, Azure and other promising new products will continue to generate sizeable cash flows. 

Amazon’s first-quarter 2019 earnings of $7.09 per share beat the Zacks Consensus Estimate by $2.48., which comprises 6.02% of the fund’s assets, is already leading the e-commerce segment and further strengthening its position with innovation in delivery and logistics, widening its product selection, device strategy, international expansion and Prime membership program.

Lastly, Visa, whose second-quarter fiscal 2019 earnings of $1.31 per share beat the Zacks Consensus Estimate by 5.65%, continues to benefit from Visa Europe acquisition, increasing business volumes, investment in digital technology and a solid balance sheet. Visa is also set to benefit from the rapid shift to electronic payments from paper money.

The strong price performances of these companies are bound to reflect in MFS Growth Fund Class A’s returns as well.

Lesser Threats From Unfavorable Economic Trends

Since MFEGX’s holdings are largely higher-quality corporate giants, such stocks have less chances of getting strongly affected by stock market downturn and slowdown in economic growth. Also, the fund is fundamentally solid as it gave stellar returns in the first quarter despite the government shutdown and trade-related concerns.

MFEGX has an annual expense ratio of 0.92%, which is below the category average of 1.07%. The fund has three- and five-year returns of 19.7% and 14.7%, respectively. MFEGX has a minimum initial investment of $1000.

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