Top Picks: The Shrinking Large Cap Growth Universe

After such a stellar performance in 2023 and 2024, many are wondering if large cap growth stocks are capable of another banner year in 2025. 

Margaret Vitrano, Co-Portfolio Manager of the ClearBridge Large Cap Growth Strategy, shares her expectations for the asset class moving forward and offers a note of caution about potential volatility ahead.

“The Strategy and the Russell 1000 Growth Index are coming off 2 years of historically robust performance. We do not expect such strong results to continue every year and have positioned the fund for the inevitable periods of turbulence that are the natural course of equity markets. High expectations could pose the greatest risk to our asset class going forward as valuations of most large cap indexes are above average levels and market positioning is bullish. The sell off at year end, triggered by the Fed's acknowledgement that inflation remains a risk and that the scope of future rate cuts could be limited, may serve as a warning that stocks could face more headwinds than are currently priced in.”

Another noteworthy trend taking place across equity markets - and especially in the large cap growth space - is the shrinking pool of publicly traded companies. Large caps have been breaking market cap records and ballooning in size, but there are fewer firms in the race to begin with. 

Bill Nygren, chief investment officer-U.S. at Harris Associates, explains what fewer publicly traded companies means for portfolio construction. 

“If we look into the various style boxes, what does it actually mean to see such a big reduction in large caps? So, in the large cap value space, there are 68 names today. Sixty-two in blend and only 22 in large growth.

So what does that mean to a portfolio manager who's trying to stay in their lane in the large growth category for Morningstar? If that manager today has 54 stocks on average in their portfolio, which is more than two and a half times the number that are actually classified as large growth. Forty percent of the stocks in their portfolio today could be classified as large growth if they owned all of them, and that's not even giving them room to say they want to exclude some stocks they think are less attractive from their portfolios.

The problem isn't quite as dire in the large blend or large value categories, but in both those categories, the average portfolio has more holdings than there are names in the style box. And you see what that's doing to active share. It makes it much harder to construct a portfolio today that's different than the style, and that's why you see so many advisors today moving to value factors or growth factors in the large space, rather than using active managers.”