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Fund Spy

The Top- and Bottom-Performing U.S. Equity Funds From the First Half

I look at the highlights and lowlights in equityland.

We're halfway into 2015, so let's take a look at the winners and losers among U.S. equity funds. I looked at the top and bottom performers in the Morningstar 500 by total return and ranking relative to their Morningstar Category. It's a useful exercise because everyone wants to know why their fund is having extreme performance, and that information can help you to understand how other funds in your portfolio performed.

Obligatory caveat: This isn't a buy list. That's what our Morningstar Medalists list is for. We have hundreds of medalists, and you can winnow the list based on your own criteria.

Top Five Performers
T. Rowe Price Health Sciences (PRHSX)
Total Return: 20%
Category Rank: Top 13%

Yes, it sounds like a broken record, but health care did well, and smaller biotech and pharma names did even better. Mergers keep driving the market higher, and this fund's emphasis on the small/mid-cap end of health care has been a boon. This fund's long rally has assets up to $15.5 billion, and the fund recently closed to new investors.

Century Small Cap Select (CSMVX)
Total Return: 14%
Category Rank: Top 3%

This fund really needed the rebound. It lagged peers badly in 2013 and 2014. The fund has dialed up health-care exposure, and names such as  AMN Healthcare Services (AHS) have helped, as have some tech and bank stocks. Even with the rally, the fund's three-year record is subpar.

 Vanguard Health Care (VGHCX)
Total Return: 14%
Category Rank: Top 61%

Mega-cap health-care stocks haven't been too shabby, either. Even dull names like UnitedHealth Group and Cigna are enjoying big rallies this year. The Supreme Court's ruling upholding the Affordable Care Act didn't hurt.

Fidelity Select Health Care (FSPHX)
Total Return: 13%
Category Rank: Top 68%

See my comments above. For this fund,  Boston Scientific (BSX) and  Valeant Pharmaceuticals International (VRX) have been big contributors.

Scotia Dynamic U.S. Growth (DWUGX)
Total Return: 13%
Category Rank: Top 1%

This superaggressive fund focuses on companies with the highest earnings-growth rates. As you can see, it's pretty when that clicks, but taking on a lot of price risk means it has a severe downside. Among the top performers in the portfolio are  Tableau Software (DATA) and  Palo Alto Networks (PANW)--they were holdings at the end of the first quarter, at least. This fund has a 277% turnover ratio, so there's no telling if they are still in the fund.

Top Relative Performers
Scotia Dynamic U.S. Growth is also top 1%. Here are some more.

Dreyfus Opportunistic Small Cap (DSCVX)
Total Return: 10%
Category Rank: Top 1%

David Daglio's bold fund is usually at the top or bottom of fund rankings. This year it is up 10% and in the top 1% of its peer group. He concentrates the portfolio on four sectors: technology, industrials, consumer cyclicals, and financials. His strategy is an unusual blend of value and growth names, and this year he's hitting on a lot of winners from both sides such as SVB Financial (SIVB) and Infoblox (BLOX).

 Thornburg Value (TVAFX)
Total Return: 7%
Category Rank: Top 1%

This fund suffered an awful stretch from 2010 through 2012 but has since rebounded nicely. Giving an overweighting to health care has worked well, but so have some well-placed consumer bets such as  Starbucks (SBUX) and  Amazon.com (AMZN).

CGM Focus (CGMFX)
Total Return: 6%
Category Rank: Top 1%

Ken Heebner's fund needed a rally, and it's up 6% to land in the top 1% of its peer group for the year to date. It was in a brutal slump in part because of a 23% short against Treasuries. However, that's helped this year, as have long positions in  Fiat Chrysler Automobiles (FCAU) and  Lennar (LEN). This fund's turnover is 266%, though, so it won't be certain what the drivers were until the second-quarter portfolio comes out.

 Sequoia (SEQUX)
Total Return: 11%
Category Rank: Top 2%

This closed fund has 26% of assets in Valeant Pharmaceuticals International. Valeant is up 67% for the year to date, and as a result, the fund is up 11%. That's pretty much the whole story. The fund actually has quite a few names that are in the red, including  Berkshire Hathaway (BRK.A),  Fastenal (FAST), and  Precision Castparts (PCP).

 Fidelity Small Cap Stock (FSLCX)
Total Return: 9%
Category Rank: Top 2%

Lionel Harris' focus on quality stocks has led the fund to some winners from a wide array of industries. He keeps individual stock bets small, but he does have some sector biases. In particular, he's been leaning toward technology and financials stocks.

Worst Performers
 Franklin Utilities (FKUTX)
Total Return: Negative 10%
Category Rank: Top 78%

A surge in the U.S. economy has increased the likelihood of the Fed raising rates this year, and that in turn has led interest rates to rise. Utilities are quite sensitive to interest rates because people own them for their yield. Franklin Utilities is lagging most utilities funds for the year to date because it focuses on U.S. electric and natural gas utilities. These stocks have higher yields but greater interest-rate sensitivity.

 Janus Contrarian (JSVAX)
Total Return: Negative 7%
Category Rank: Top 99%

How the heck did a large-blend fund that has an overweighting in health care end up with a 7% year-to-date loss? Dig into the portfolio and you'll see some really beaten-down value stocks. When investors decide a battered stock is a value trap instead of a value, it can get ugly. Of course, all these holdings could rally, but for now it's not pretty. Number-two holding  United Continental Holdings (UAL) is down 20%. Then there's  Motorola Solutions (MSI) down 14%, Knowles Corp (KN) down 24%, and Lands' End (LE) down 55%. Ouch.

 Vanguard REIT Index (VGSLX)
Total Return: Negative 6%
Category Rank: Top 71%

and  Fidelity Real Estate Investment (FRESX)
Total Return: Negative 5%
Category Rank: Top 34%

We are back to our interest-rate sensitivity theme. REITs are yield plays like utilities and thus are vulnerable to an interest-rate spike. The Fidelity fund is actually doing a bit better than most REIT funds.

 AMG Yacktman Focused (YAFFX)
Total Return: Negative 5%
Category Rank: Top 99%

Among large caps, even some names considered blue chips have been singed. This fund is down 5% and in the bottom 2% of its peer group. Only two of this fund's top 10 are in the black. Among the hard-hit are  Procter & Gamble (PG) at negative 13%,  Oracle (ORCL) down 10%, and  Twenty-First Century Fox (FOXA) down 15%. These are the sorts of names that have propelled the fund to strong long-term returns, even if they've caused it to lag recently.

Lagging Relative Performers
AMG Yacktman Focused and Janus Contrarian were two of the three with next-to-last percentile performance.

 FPA Perennial (FPPFX)
Total Return: Negative 5%
Category Rank: Top 99%

This fund is getting a new name, manager, and strategy. On Sept. 1, Greg Nathan takes over what will be FPA U.S. Value. In the meantime, transportation stocks like  Knight Transportation (KNX) and  Heartland Express (HTLD) have hurt year-to-date performance. The fund is down 3.4% and in the bottom 2% of its peer group.

 AMG Yacktman (YACKX)
Total Return: Negative 5%
Category Rank: Top 98%

The story is the same as that of AMG Yacktman Focused, only with smaller position sizes.

 FPA Capital (FPPTX)
Total Return: Negative 4%
Category Rank: Top 98%

Energy stocks plus for-profit education stocks like DeVry (DV) and  Apollo Education (APOL) equal dismal performance. This 1-star closed fund has had a rough go of it lately.


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