Second Quarter in U.S. Stock Funds: Growth on Fire
Growth funds and technology dominated, while value and energy struggled.
As the second quarter winds to a close, the market still favors U.S. equity funds. Eight of the nine Morningstar Style Box categories have posted solid gains for the quarter to date through June 27, with small value’s slightly negative quarter-to-date category return the outlier.
U.S. growth equity funds have continued to dominate value offerings in 2017, reversing the pattern seen in 2016. Large-growth was the top-performing diversified U.S. equity Morningstar Category for both the quarter and year to date as of late June, with mid- and small-growth not far behind. Strong performance in growth-oriented sectors, including technology, fueled big rewards for many funds, though tech stocks pulled back a bit toward quarter-end.
The energy sector, a value haven and market darling in 2016, changed course in 2017 as oil prices slid during the quarter. Commodity-related stocks, such as precious metals and natural resources, also were losers in this short span. Financials stocks, which had a big tailwind in late 2016 on optimism about the potential for less regulation under the Trump administration, also cooled off.
Morgan Stanley Institutional Growth (MSEQX), which holds nearly half of its assets in technology stocks, was up almost 11% for the quarter through June 27, landing at the top of the large-growth category--quite different from its 2016 showing, when it posted a loss. Top position Tesla (TSLA) continued its ascent, and about half of its holdings posted double-digit gains for the quarter.
Fidelity OTC (FOCPX) gained 9.4% for the quarter to date, more than doubling its Nasdaq Composite benchmark as the Nasdaq-traded stocks it favors rallied.
T. Rowe Price Blue Chip Growth (TRBCX) and T. Rowe Price Institutional Large Cap Growth (TRLGX) landed in the large-growth category’s top decile, getting an extra boost from out-of-benchmark Chinese Internet names Tencent and Alibaba (BABA).
Baron Partners (BPTRX), a mid-growth fund, was up more than 14% for the quarter to date through June 27. Beyond a huge position in Tesla (18% of assets as of March), it also benefited from Zillow Group (ZG) and Panera Bread , which surged after agreeing to a buyout with JAB Holdings during the quarter.
Among the funds that had a rougher go, Fairholme (FAIRX) lost more than 6% for the quarter to date through June 27, as its Sears-related holdings continued to bleed.
Large-value fund Poplar Forest Partners (IPFPX) cooled off after a strong finish in 2016. A few holdings, including MSC Industrial Direct (MSM) and Mattel (MAT), posted double-digit losses for the quarter.
It’s unsurprising to see deep-value fund Hotchkis & Wiley Mid-Cap Value (HWMIX) land near the bottom of its category for the quarter. Beyond its value leanings, it also held nearly 20% in energy, a clear headwind for the period.
For all category returns through the previous day, visit the Fund Category Performance page.
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Katie Rushkewicz Reichart does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.