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For 2011, our Top Mutual Fund Pick is the Franklin Growth Fund (FKGRX), a large cap, growth mutual fund that we originally reviewed in early August 2010. As one of our Top 40 Mutual Funds, this mutual fund’s heavy focus on domestic equities makes it an ideal recipient of our Top Pick Award.

Several key things that investors will note with this particular equity fund is that it holds those very same equities that any smart investor would. Among its top holdings are Apple at 6.34% of assets, International Business Machines (IBM) at 2.14% of assets (in fact, this is one of 4 funds reviewed at the Mutual Fund Site that stands to benefit from some big news from IBM) and 3M at 2.04% of assets. These are fairly aggressive positions given the fund’s 152 individual holdings, but not quite enough to put the fund at too much risk. We like this, although many would argue that it holds too many individual securities in order to stand apart from its peers.

But what really makes this Franklin fund so unique is its approach. Its management has taken a buy and hold approach to security selection. We feel that it is for this reason that this equity fun d has earned only 4-stars of an available 5 from the folks over at Morningstar.com. (Yes, a 4-star rating is indeed respectable and nothing to be laughed at).

Performance

In terms of performance, the Franklin Growth Fund speaks for itself. For all of 2010, this fund returned just 14.87%, marginally lower than the S&P 500’s 15.06% (and the average among large-cap growth funds at 15.53%). So for 2010, this fund was nothing close to being a superstar, but it was no slouch either.

Over a longer period, however, this fund does not stray too far from the performance of the S&P 500’s performance on the downside. Its worst year was off by just 2.25% from the S&P. That year was in 2002. In fact, in 2008 when most other funds were decimated, this Franklin fund beat the S&P 3.61%, realizing a loss of 33.39% compared to its peers’ -40.67 compared to the S&P 500’s -37%.

Over the past decade, its best year was in 2009 when it returned 34.25% to investors, beating the S&P 500 by 7.78% (many of its peers blew this number out of the water, mind you). When you look at the risk, this fund makes a strong argument for the management team’s tried and tested buy-and-hold security selection process. We like that and its performance certainly supports it as well.

Weighing Risk and Return

One of the nice things with this fund is that Franklin rewards the management team based on long-term performance (among other qualitative measurements). This allows the management team to focus on taking longer term positions, something has proven to be a rewarding strategy for the fund in the past and will continue to be a dominant contributor to future returns.

As well, Franklin employs among the strongest analysts and managers in the industry. This bodes well given the Manager Compensation grid which is at 65% Cash (at a maximum). The balance of compensation comes through the issuance of stock or fund units, which provides investors with a high level of comfort since the manager’s “stake” in the fund will only increase with time. It is therefore in the managers’ best interest to make sure the fund continues to perform.

Management Team

One of the strengths with the Franklin Growth fund is its tenured management team. Vivian Palmieri has been on the fund since 1965, Conrad Herrmann since 1991 and Serena Vinton since 2008. The decades of experience make this fund a lot less risky than many others with a similar or even better track record, in our opinion (remember, our objective here is to decide on a fund that will over-perform solidly without taking undue risks in the even the economy and, worse the market, were to hiccup in 2011). The tenured team in place is more than capable… it is proven.

Top Holdings

For the most part, this is a pure domestic equity mutual fund. Its focus is on Large Cap Growth securities, which is a big plus for the year to come as we feel that this category will outperform without taking on unnecessary risks. But what impresses us most with this fund (and pretty much all of the funds we review here) is its foundation of solid equities. The top three (discussed above) are solid hitters. Apple enjoyed a return of more than 56% in 2010, IBM enjoyed a 12.67% return in 2010 and 3M enjoyed just a touch less than 5%.

Other top holdings include Johnson and Johnson (-2.47% in 2010), Boeing (22.7% in 2010) and WW Grainger (44.1% in 2010). This solid line up of domestic equities is among the top 10, which makes up more than 26% of the fund’s assets. Such a large weighting signals how much faith Franklin has in the recovery headed our way in 2011 and it is not unlikely that such big names and performers will be among those that will bring huge returns.

Expecting Big Things

It is not so farfetched to expect big things from the Franklin Growth fund. As our top mutual fund pick for 2011, the equity fund will deliver. As with previous top picks (for 2010), returns will be had without excessive risk.

Of course, there are other exceptional mutual funds that could easily outperform the index was well, such as two great funds we will touch on later this week (Sequoia fund and the Fairholme Fund) and any of the other 40+ mutual funds we cover at the Mutual Fund site (we really like the Oceanstone Fund but worry that its risk profile and high turnover could result in the one thing we want our readers to avoid – excessive risks).

With risk, underlying assets, performance track record, management tenure and some of the other things we like to keep at the forefront when evaluating funds taken into account, the Franklin Growth Fund is really an easy decision for 2011.