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Fund Spy

The Year in U.S. Equity Funds, 2019

A very good year for the market.

The U.S. stock market finished 2019 with its best annual gain since 2013. Stocks bounced back from their late-2018 losses in the first quarter of 2019, posted cautious gains midyear, and finished the year with a rally as trade tensions tapered. The S&P 500 posted a 31.5% return for the year, while the Nasdaq Composite Index gained 36.7% and the Russell 2000 Index of small-cap stocks advanced 25.5%.

Growth stocks continued to beat value stocks in 2019. The Russell 3000 Growth Index’s 35.9% yearly gain beat the Russell 3000 Value Index’s 26.3%. The FAANG stocks--Facebook (FB), Apple (AAPL), Amazon.com (AMZN), Netflix (NFLX), and Alphabet (GOOG)--drove growth’s outperformance. Netflix’s more than respectable 20.8% gain made it the worst-performing FAANG, while Apple led the way with an 88.1% rise, its best year of the decade. The excellent returns of such widely held giants helped large-cap stocks outperform small caps. Large-growth and mid-growth funds topped the other seven Morningstar Style Box categories, while small-blend and small-value lagged.

Technology sector funds stayed hot, while energy funds remained cold. The typical tech fund gained 37.2% for the year, which made it the best-performing U.S. Morningstar Category (only the non-U.S.-dominated precious metals category did better, with a 39% gain). Energy funds bounced back from their 27% 2018 loss, but their 7% average gain still ranked near the back of the category pack. Geopolitical concerns and low oil prices have weighed on the sector.

In the context of these trends, here are some of the biggest winners and losers of 2019 among individual U.S. equity funds with Morningstar Analyst Ratings of Gold, Silver, or Bronze).

Leaders
Silver-rated Fidelity Growth Company (FDGRX), one of the more aggressive funds in the large-growth category, was among the best in the group with a 38.4% annual gain. Apple was its top contributor, though fourth-quarter rallies by Shopify (SHOP) and Advanced Micro Devices (AMD) helped, too. Biotech stocks Alnylam Pharmaceuticals (ALNY) and Acadia Pharmaceuticals (ACAD) also performed well.

Though large caps beat small caps, several small-growth funds were among the best-performing funds Morningstar covers. Most had above-average tech stakes and some big healthcare winners. A 50% tech stake in Silver-rated Artisan Small Cap’s (ARTSX) portfolio and healthcare picks such as DexCom (DXCM) and NeoGenomics (NEO) boosted its results. Pharmaceutical firm The Medicines Co (MDCO), one of Bronze-rated Harbor Small Cap Growth’s (HISGX) largest holdings, gained more than 300% this year. Similarly, Gold-rated Wasatch Small Cap Growth (WAAEX) had success with picks such as ChemoCentryx (CCXI) and Intra-Cellular Therapies (ITCI).

Gold-rated Diamond Hill Large Cap (DHLAX) and Bronze-rated ClearBridge Mid Cap (SBMAX) were among the best-performing nongrowth funds. Large-value fund Diamond Hill Large Cap made up for its light tech stake with strong stock-picking elsewhere; Citigroup (C) and Discover Financial Services (DFS) were among its top contributors. ClearBridge Mid Cap’s blend approach had big winners in semiconductor equipment company Lam Research Corp (LRCX) and virtual car lot Carvana (CVNA), both of which posted triple-digit gains.

Laggards
Bronze-rated Hotchkis & Wiley Mid-Cap Value’s (HWMIX) deep-value approach and big energy stake were out of favor in 2019. Its averaged just under a fifth of assets in energy for the year, and stocks like shale producer Whiting Petroleum (WLL) were huge detractors. It was the fund’s top holding at the beginning of the year and fell nearly 70%. Energy sector funds lagged, too. Neutral-rated Ivy Energy’s (IVEIX) 4.6% gain was among the lowest of any domestic-equity fund Morningstar covers. The fund’s stake in battered energy equipment and services stocks limited it its gain to two thirds of the typical energy fund’s 6.9%.

Small-value funds also struggled. Bronze-rated Royce Special Equity’s (RYSEX) cash stake, which averaged 18% for the year, dragged on results. Communication services and industrials picks also hurt, but the fund’s biggest misfire was media company Meredith (MDP), a deep-value pick that fell 35% in 2019. A tilt toward smaller-than-average firms held Silver-rated DFA U.S. Small Cap Value (DFSVX) back, though individual positions such as Mallinckrodt (MNK) and United States Steel (X) made their mark as well.

Though large-value funds fared better than small-value funds, Bronze-rated Transamerica Large Cap Value (TWQAX) fell far behind its peer group. Contrarian tech picks such as Nokia Oyj (NOKBF) and CommScope Holding (COMM) hindered results, but not as much as oil exploration and production company Occidental Petroleum (OXY), which fell nearly 30% as it digested its acquisition of Anadarko.

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