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Fund Spy

Top Fund Managers Largely Avoided the Market’s Biggest Winners

Outside of vaccine-makers, few owned the fastest risers since the start of 2020.

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The hottest stocks from the start of 2020 through June 2021 tended to be related to coronavirus vaccines, message boards, or bitcoin. Highly rated managers did not own much in the latter two groups. Bottom-up stock-pickers largely shunned meme and bitcoin stocks because they didn’t like or couldn’t value the businesses, although some quantitative managers whose models use price momentum as an input were more willing to own them. It is not uncommon to see managers eschew the highest performers, as they are often penny stocks teetering on insolvency whose stock gains are largely the product of their tiny starting bases. But this period was different; normally, in any given month, two or three stocks in the Russell 3000 will have gained 1,000%-plus over the trailing 18 months. This period saw 16, the highest since 2010, and at least half cannot be labeled as mere penny stocks. A number of the companies are now meaningful constituents of widely used indexes, which makes ignoring them tougher to do. To track how top-rated fund managers traded the frothiest stocks since the start of 2020, we examined the portfolio changes of every fund with a Morningstar Analyst Rating of Bronze or higher that owned at least one of the Russell 3000’s top 20 performing stocks.

Jack Shannon does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.