This growth fund up more than 30% this year uses four key investing principles
(This story is for CNBC PRO subscribers only.) One growth fund laser focused on identifying companies with earnings power ahead of expectations has outperformed the market this year as several long-term bets and pandemic-related portfolio changes drive returns. The Hartford Growth Opportunities Fund , which has more than $2 billion in assets under management, is up 31% year to date, compared with the S & P 500's roughly 4% return. The Russell 1000 Growth index, which serves as the fund's benchmark, has gained 20% this year. Over the last five years, the fund has posted an annualized return of just under 20%. Steve Mortimer, who has been co-portfolio manager since 2010, said the investment strategy is based on four key principles: identifying companies with long-term earnings power above what the Street is pricing in, analyzing short-term earnings for clues as to where a company is headed, looking for growth in unexpected places, and diligently weighing the risk against the reward for all stocks within the portfolio. "Stocks follow earnings," he said. "If we can identify where earnings expectations are likely to go up a lot, hopefully that's going to be a very successful holding for us. The bigger the differentiation, the greater our margin of safety in investing, so we're constantly looking for that significant differentiation." The team has been working together for the better part of 20 years, meaning they've seen growth companies come and go amid different market environments. Mortimer said this has helped inform the understanding of new and disruptive companies and technologies. "History doesn't repeat itself, it rhymes and you see that a lot in terms of growth companies — a different product, a different service, but we can understand the dynamics that a company's lifecycle might have gone through with prior examples," he told CNBC. With more and more data available with which to analyze companies, Mortimer noted that interpretation is key. He pointed to when Netflix increased its prices a few years ago as a prime example. The hike hit near-term subscriber growth, with many saying the slowdown was poised to continue. Looking at the same data, however, Mortimer and his team concluded that it actually pointed to a reacceleration, and used the mismatch in their view versus the market's view to buy shares. Finding this differentiated viewpoint is instrumental to any stock that's added to the portfolio. The team then examines the company from a risk versus reward standpoint — upside potential is important, but so, too, is possible downside. As of the end of July, the fund's top holdings were Apple , Amazon , Nvidia , PayPal , Square and Workday , according to data from Morningstar. Pandemic sparks portfolio changes The fund doesn't prescribe to the buy-and-hold model of investing. Mortimer and his team are constantly reevaluating each of their positions, and as such made a number of changes as the pandemic sent stocks tumbling in March. Mortimer said the ensuing recession was of a type that's never been seen before where "discretionary consumer spending had been reallocated to such a degree where it created massive winners and losers at the same time." The team sold stocks that couldn't survive an entire year of the economy being shutdown, while picking up names like Chipotle , Intuitive Surgical and TJX Companies , all of which had sold off. The fund had previously owned Chipotle, so the team was familiar with the restaurant chain's business model, including its digital ordering and delivery capabilities. Chipotle was readded to the portfolio in March, and then sold just two months later in May after shares quickly rebounded off their low. During that time frame — from the 52-week low in March to the end of May — the stock jumped 141%. Intuitive Surgical was another name the fund had owned previously and rebought during the pandemic. The stock sold off in tandem with the rest of the market, but Mortimer believes the company is well-positioned relative to its peers going forward for a variety of reasons, including that competitors' clinical trials were disrupted by the pandemic. Shares have bounced 95% from the March 23 low. TJX Companies was also added because Mortimer believes the company has acquired new customers during the pandemic. Retail has been one of the hardest-hit sectors, and amid bankruptcy filings there's market share up for grabs. Additionally, Mortimer noted that consumers tend to favor discount retailers during downturns. "We're very confident that with all the inventory that's being created from the disruption of retail and competitors going bankrupt, we think that when stores reopen customers are going to return," he said. Big Tech still has room to run Apple is by far the fund's largest position, accounting for 10.5% of the portfolio as of the end of July. Hartford increased its position in the tech giant in April, when the S & P 500 tumbled into bear market territory at the fastest pace on record. Mortimer believes the company will continue to benefit from the shift in consumer spending prompted by the pandemic. With people stuck at home for months on end, and with work and school moving online, iPad and Mac sales are likely to accelerate. This is especially true since spending in other areas, such as travel and hotels, has declined, meaning consumers have extra money in their pockets. Shares of Apple have faltered in recent sessions, but the stock is still up more than 50% this year. The fund's second largest holding, at 8.13%, is Amazon. Mortimer said that the e-commerce giant's investments in areas like AWS and one-day shipping are paying off and should continue to drive returns. The company benefited from changing consumer behavior during the pandemic, and Mortimer believes these trends are here for the long term. "Something that I think is a top of mind for people is trying to figure out which winners this year become losers next year, and which winners build on those winnings going forward, and we think Amazon is one that's going to build on its winnings this year," he said. Mortimer did note, however, that he has trimmed the position after Amazon's more than 67% surge this year. Barbell portfolio The fund has several stocks that have benefited from the Covid-19 pandemic, but Mortimer said he's also focused on adding names that have been hurt but have the potential to bounce back. In other words, he's looking to create a barbell portfolio. Align Technology is one example. The company makes clear dental aligners that can be used in lieu of wire braces. Another stock that fits into a post-coronavirus world is Booking Holdings . "It really met our survive-and-thrive mantra during this pandemic. ... Unlike hotels, which have significant fixed cost structures, Bookings, an aggregator online of demand, has an asset-light model." As the pandemic abates, Mortimer believes the company will "gain really a renewed relevance" since hotels will rely on aggregators more amid a weak economy. The fund carries an expense ratio of 0.65%. Correction: This report was revised to correct that Mortimer said Intuitive Surgical's competitors' clinical trials had been disrupted.

Apple split its stock on Monday. FREDERIC J. BROWN | AFP | Getty Images