High-flying growth fund managers stumble in July

BOSTON (Reuters) - Some prominent growth-fund investors struggled in July after posting strong returns in the first two quarters of the year, as oil and commodities fell and financial stocks recovered.

Will Danoff and Harry Lange, managers of Fidelity's biggest U.S. stock funds, Ron Sachs and Jonathan Coleman of Janus Capital Group (JNS.N), and Ken Heebner of Capital Growth Management were among those whose performances faltered in July and hurt their year-to-date returns.

But some value managers such as Richard Pzena and Bill Miller of Legg Mason had their best month in several quarters.

Growth investors pick stocks whose earnings show fast growth and they have been favoring energy and commodities-related investments in the past few years. Value managers, who buy stocks with low valuations and good longer-term prospects, are heavily invested in financials.

The performance divergence widened over the past year as the credit crisis hit financials and the relentless rise in oil pulled commodity plays higher. That trend reversed in July.

"There's a lot of momentum strategies behind the growth style," said Jeff Tjornehoj, senior research analyst at Lipper. "And the stocks that had the momentum going into the first half of this year were those focused on basic materials and commodities, but the momentum dried up as worries over the U.S. economy and housing market rose."

Lipper is a unit of Thomson Reuters Corp (TRI.TO)TRIL.L.

Danoff's Contrafund, Fidelity's biggest stock fund, lost 4.14 percent in July against the negative 0.8 percent return of the Standard & Poor's 500 index, according to Lipper data. That pushed down its ranking among peers to 40th percentile for the whole year from 22nd percentile at the end of June.

"MISLEADING"

The $70.7 billion fund had 18 percent of its portfolio in energy stocks and 12.1 percent in materials as of June 30. Schlumberger Ltd (SLB.N), the world's biggest oilfield services company, Exxon Mobil Corp (XOM.N), and Canada's biggest energy firm, EnCana Corp (ECA.TO), were among its top-seven holdings on June 30 and shares of all three slid in July.

Fidelity's Magellan fund fell 3.93 percent in July and is now in the 87th percentile, according to Lipper. It had returned 0.57 percent in the quarter ended June 30, outperforming the S&P index's negative 2.73 percent return.

The $35.7 billion Magellan had an 18.2 percent exposure to the energy sector and a 7.4 percent exposure to the materials sector as of June 30.

"What helped keep them afloat -- avoiding financials, and (buying) energy, which has been strong most of the year -- had a bit of a role reversal for this month," said Christopher Davis, a Morningstar Inc analyst. He said that especially impacted Contrafund, which was "well overweight energy".

A Fidelity spokesman said all its funds "focus on the long term" and it was inappropriate to focus on just one month's numbers.

Janus Capital's flagship Janus Fund lost 2.59 percent in July. The fund had gained 0.24 percent in the second quarter when it had outpaced the S&P index.

The $10.8 billion fund, managed by Coleman and Dan Riff, had oil producer and refiner Hess Corp (HES.N) as its top pick and Exxon Mobil as its eight-biggest holding on June 30.

At the $12.8 billion Janus Twenty Fund, the performance deterioration in July was starker.

Managed by Sachs, the fund fell 4.91 percent in July, after jumping 7.94 percent in the second quarter. The fund, which had more than a third of its portfolio in commodities stocks, is still the top performer in the large-cap growth category, according to Lipper.

"We think it's misleading to look at one month's performance," Janus spokesman James Aber said.

Heebner's CGM Focus fund, which had $10.3 billion in assets on June 30, slid 18.96 percent in July after gaining 27.01 percent in the second quarter. The fund has a big focus on the materials sector and the July losses have tipped it into the red for the year and it is now down 5.12 percent.

CGM was not immediately available for comment.

On the other hand, Pzena's $3.9 billion Classic Value Fund, which he co-manages for John Hancock Funds, rose 1.9 percent in July. The fund has 36 percent of its portfolio in financials. But it is still down 20.11 percent in 2008 through July 31.

Miller's $9.7 billion Legg Mason Value Trust lost 0.97 percent in July, a significant improvement considering that it lost 11.07 percent in the second quarter and is down 29.29 percent in 2008.

(Editing by Braden Reddall)