3 Large-Cap Funds That Look Risky Despite Strong Gains and Solid Management

US large-cap funds enjoyed another bountiful year in 2024. The typical fund in the large-growth Morningstar Category returned 29.0% last year, while the average fund in the large-blend group gained 21.5% and the typical large-value offering returned 14.3%.

Many of the US large-cap funds that outperformed last year are attractive long-term options—for investors with realistic expectations—because they’re run by strong management teams employing robust investment processes.

But a number of funds that posted superior gains in 2024 are underwhelming options despite being in good hands because their investment approaches come with significant risks or other limitations, including three that receive Morningstar Medalist Ratings of Neutral: Alger Capital Appreciation ACAAX, Fidelity Leveraged Company Stock FLVCX, and Sound Shore SSHFX. Investors should approach all three funds with their eyes wide open.

Alger Capital Appreciation

Managers Patrick Kelly and Ankur Crawford are experienced and well-supported. Thanks largely to their decision to build a hefty stake in the hot technology sector—including a low-double-digit position in Nvidia NVDA—this large-growth fund posted a 49.7% gain in 2024 versus 29.0% for its typical peer and 33.4% for the Russell 1000 Growth Index. That’s impressive. But the team’s approach, which earns an Average Process rating, comes with ample concentration and other risks, and it is pretty daring overall. Since Crawford joined Kelly at the helm in June 2015 through December 2024, this fund has been significantly more volatile than the average large-growth fund and the Russell 1000 Growth Index. It also has captured roughly 108% of the index’s downside during the period, whereas its typical peer has captured roughly 101%. And while its total and risk-adjusted returns are better than those of its average rival over that span, they’re worse than the index’s.

Fidelity Leveraged Company Stock

This large-blend fund has gained 26.7% in 2024 versus 21.5% for its typical peer and 24.5% for the Russell 1000 Index. Lead manager Mark Notkin and comanager Brian Chang are skilled, so this offering is in good hands. But their leveraged-equity mandate, which focuses on stocks with credit ratings of BBB or lower, merits a Below Average Process rating because it is unusual, restricts its universe, and courts ample volatility. From Notkin’s September 2016 start through December 2024, this fund was much more volatile than nearly all its category peers as well at the Russell 1000 Index, and it captured roughly 121% of the index’s downside during the period. Its average rival captured only around 97%. It posted a worse total return than the benchmark over Notkin’s tenure as well as much worse risk-adjusted returns than its average peer and the index.

Sound Shore

This large-value fund’s investment team remains seasoned and strong after some late-2024 modifications. Owing to nice gains from certain of the team’s utilities and technology picks, this fund posted a 22.6 gain last year versus 14.3% for its typical peer and 14.4% for the Russell 1000 Value Index. That’s encouraging. But the team’s value discipline, which earns an Average Process rating, is fairly bold and has often led to oversized losses in selloffs. This fund has captured roughly 109% of the index’s downside during the past 15 years, while its average rival has captured only around 97%. This fund has also suffered significantly more volatility than its average peer and the benchmark over the trailing 15 years. Despite its recent success, its 15-year total returns are just moderately better than those of its typical rival and right in line with those of the index.