Renaissance Large Cap Growth Fund Navigates Volatility with a Shift Toward AI-Driven Growth

The Renaissance Large Cap Growth Fund (Class N) entered 2025 under pressure, facing a market environment defined by shifting investor sentiment and sector volatility. While the fund's Q1 2025 performance of -5.49% marked a relative outperformance against its Russell 1000® Growth Index benchmark (-9.97%), its underperformance versus the S&P 500 (-4.3%) underscores a strategic dilemma: how to balance growth exposure with valuation discipline in an uneven market cycle. Amid these headwinds, Renaissance's pivot toward AI-focused equities signals a recalibration toward sectors it believes will deliver outsized returns, even as legacy holdings like Honeywell and Marriott continue to defy broader market pessimism.

Performance Context: Growth vs. Value Tug-of-War

The fund's 12-month return of 2.68% trails the Russell 1000 Growth Index's 7.76%, a gap widened by the latter's concentration in megacap technology and consumer discretionary stocks. By contrast, Renaissance's focus on “reasonably priced growth stocks” has kept it underweight in areas like semiconductors and cloud infrastructure, which drove the S&P 500's resilience in Q1. The disconnect highlights a fundamental debate: Is the fund's valuation-conscious approach a missed opportunity in a growth-obsessed market, or a prudent hedge against overvaluation risks?

Key Holdings: Legacy Strengths and Strategic Shifts

Honeywell International (HON) and Marriott International (MAR) remain top performers in the fund's portfolio, with HON's 12-month return of 12.16% and MAR's 12.34% gains defying broader market skepticism about industrials and travel. Both companies benefit from secular tailwinds: Honeywell's aerospace and sustainability technologies align with post-pandemic demand for efficient systems, while Marriott's global hotel pipeline capitalizes on rebounding business travel. Yet Renaissance's commentary underscores a deeper truth: these stocks are now seen as “hold” opportunities rather than catalysts for aggressive growth.

The fund's reluctance to prioritize HON and MAR stems from their inclusion in a crowded “blue-chip growth” category. Both stocks lack the valuation multiples of AI leaders like NVIDIA, which Renaissance cites as a benchmark for its search for “NVIDIA-like potential at lower multiples.” This pivot reflects a conviction that AI-driven sectors—where innovation is accelerating faster than Wall Street's pricing—offer superior risk-adjusted returns in a volatile market.

The AI Thesis: Value in Disguise?

Renaissance's emphasis on AI stocks aligns with its historical contrarian streak. While hedge funds have piled into top names like Microsoft and Alphabet, the fund seeks smaller players with AI integration in niche markets—think industrial automation or healthcare diagnostics. The strategy hinges on two assumptions: (1) AI's disruptive potential is underappreciated in non-tech sectors, and (2) current market volatility will pressure overvalued stocks, creating buying opportunities in overlooked growth areas.

Critics, however, point to risks. AI valuations themselves are contentious; the sector's boom has already led to frothy multiples in some corners. Renaissance's ability to discern winners will depend on its bottom-up research—particularly in identifying companies where AI adoption translates to tangible profit growth, not just buzzword compliance.

Investment Implications: Positioning for a Prolonged Cycle

For investors in the Renaissance fund, the Q1 results underscore the importance of a long-term lens. The fund's 2.68% annual return may appear modest, but its risk management—evident in its outperformance during Q1's tech-led selloff—supports its claim to navigate cycles better than benchmarks. Those with a multi-year horizon may find value in its current holdings, provided they accept short-term underperformance in favor of quality.

The fund's AI pivot also offers a tactical angle: investors could pair Renaissance with targeted exposure to mid-cap AI innovators, leveraging the fund's stock-picking rigor while avoiding concentrated bets on overhyped giants.

Conclusion: Volatility as a Catalyst for Selectivity

Renaissance's Q1 performance illustrates a core truth of growth investing: undervalued opportunities often emerge in sectors overlooked by momentum-driven markets. While Honeywell and Marriott exemplify this principle, the fund's broader shift toward AI-driven innovation reflects a belief that the next wave of growth will favor companies where technology fundamentally reshapes profitability. For investors willing to weather near-term volatility, this selective approach could position the fund to outperform over the next five years—provided the AI thesis delivers on its promise.

In a market where uncertainty reigns, Renaissance's discipline to marry growth with valuation discipline remains its strongest asset. The test now is whether its contrarian bets on AI can bridge the gap between current performance and long-term ambitions.