Who's complaining about stock market results for 2019? Not us. Investors in U.S. shares easily shrugged off the threats of a growling bear in late 2018 and pushed the market to record highs throughout 2019. And most foreign markets dazzled. Although they didn't keep pace with U.S. stocks, they posted double-digit gains--a refreshing turnaround from previous years. In all, it was a winning year for stocks (bonds did well, too). Returns here and in the tables below are through December 31.
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Though all major U.S. stock groups did well in 2019, large-company shares led the way, as they have for most of the past decade. The large-company Standard & Poor's 500-stock index notched a 31.5% return. Stocks in small and midsize companies didn't disappoint, even though they lagged the S&P 500. The S&P MidCap 400 benchmark of midsize firms gained 26.2%, and the Russell 2000 small-company stock index climbed 25.5%. Technology shares were unstoppable. Information technology was the best-performing sector in the S&P 500 last year, with a 50.3% gain.
Overseas, negative interest rates in Denmark, Germany, Switzerland, Sweden and Japan dominated headlines and buoyed foreign stocks. The MSCI EAFE index, which tracks foreign stocks in developed countries, gained 22.0% in 2019. Even stocks in emerging nations fared well. The MSCI Emerging Markets index gained 18.4%, thanks mostly to hefty gains in China, which now represents about one-third of the EM benchmark. Shares did well in Russia, Greece and Egypt, too.
We show the top-performing stock mutual funds in 11 categories. The list includes only funds with minimum-investment requirements of $10,000 or less, and it excludes leveraged and inverse index funds.
Large-company stock funds
Tech propelled outsize returns.
Large-company funds have had the wind at their backs, and they've used outsized stakes in technology as sails. Concentrated portfolios, with relatively few stocks, have done well. Brown Advisory Growth Equity manager Ken Stuzin, at the helm nearly 21 years, keeps the count at 30 to 35 high-quality stocks. Managers at the firm's similarly concentrated Sustainable Growth fund seek firms with a competitive advantage due to green factors such as resource-efficient design or manufacturing. Tech and health care are the biggest sector bets in both funds, which require just $100 to invest. DF Dent Premier Growth runs a 37-stock portfolio; Visa and insurer Markel are the top holdings. Akre Focus, a solid, 10-year winner with just 19 stocks, has a big slug (17%) of cash. USAA Nasdaq-100 index is a good choice offering a broader approach.
Midsize-company stock funds
Mid caps got their mojo back.
Mid-cap shares lost their mojo in 2018, but in 2019, they were hot. The S&P MidCap 400 index posted a 26.2% gain in 2019. DF Dent Midcap Growth is a member of the Kiplinger 25, our favorite no-load funds. The fund's managers favor growing businesses that generate cash, dominate their industry and have smart, shareholder-focused executives at the top. Baron Partners Retail ranks well over the past decade and the past year. Its hefty 2.0% expense ratio is a turnoff, and you need an iron stomach to endure the ride. But manager Ron Baron has delivered fat returns with spicy investments such as Tesla. The manager at Janus Henderson Contrarian is relatively new, but we like what we see so far. Expenses are a below-average 0.74%, too.
Small-company stock funds
Small stocks fared better this year, but it wasn't enough to beat the S&P 500. Growth-focused funds beat value-oriented offerings for the third year running. Not one small-value fund made the winners lists. Wasatch Micro Cap, which focuses on firms with less than $1 billion in market value, beat the Russell 2000 index over the past one, three, five and 10 years. But its 1.65% annual expense ratio is pricey. Wasatch Ultra Growth invests in companies averaging about $2.5 billion in market value and has an even better 10-year record. Tech and health care shares dominate both Wasatch funds. At Needham Small Cap Growth, the one- and five-year records shine, but its long-term record is below average. We're eyeing Davenport Small Cap Focus, which holds just 31 stocks. The five-year-old fund is off to a fantastic start.
Aggressiveness paid off.
Hybrid funds own a mix of stocks and bonds, and in 2019, it paid to tilt toward stocks. At year-end, eight of the top 10 performers for the one-year period held more than 80% in stocks. Fidelity Convertible Securities made the list with convertible bonds, which pay regular coupon payments like any bond but can be converted into a predetermined amount of the issuer's stock. Value Line Capital Appreciation and Value Line Asset Allocation use the firm's "timeliness" rankings to find attractive stocks. The former recently held 84% of assets in stock; the latter holds a 60-30-10 split among stocks, bonds and cash. Plumb Balanced, which holds about 60% of assets in stocks, focuses on innovative firms with ample recurring revenue streams. Visa and Mastercard are the top two holdings in the 37-stock portfolio.
Large-company foreign stock funds
Catching up to U.S. markets.
Foreign markets have struggled to keep up with shares in the U.S. That said, several funds walloped their peers and the broad U.S. stock market in 2019--among them, Fidelity International Growth, a member of the Kiplinger 25. Manager Jed Weiss favors attractively priced shares in large, growing foreign companies that can raise or hold prices firm even when demand is sluggish. A chunk of investments in U.S. firms, including Visa and Mastercard, have helped. Vanguard International Growth invests in large, growing companies, too, but it's got a slightly riskier profile, thanks to a stash (22% of assets) in emerging-markets stocks that's twice as big as that of its competition.
Small- and midsize-company foreign stock funds
Up off the mat.
After a dismal 2018, small foreign companies rebounded in 2019, and many funds that focus on this category posted solid double-digit gains. The managers at AMG TimesSquare International Small Cap, a Kip 25 member, favor best-in-class small firms in developed countries with a sustainable competitive edge. The fund has outpaced its peers in all but one calendar year since 2014, its first full year after launching in 2013. It has sizable bets in Japan, France and the U.K. Grandeur Peak International Stalwarts invests in small-to-midsize companies with increasing revenues, stable profit margins and healthy balance sheets. The U.K., Japan and China/Hong Kong are the fund's biggest country exposures, and the portfolio's 98 stocks have an average market value of nearly $5 billion.
Global stock funds
Best of both worlds.
Funds in this category invest in a mix of U.S. and foreign stocks, so they have fared better than funds focused only on foreign stocks in recent years. Baron Global Advantage was tops in 2019, but it's a winner over the past three and five years, too. (The fund isn't old enough for a 10-year record). A hefty 25% stake in emerging-markets stocks sets Global Advantage apart from other global funds, which typically hold 9%. T. Rowe Price Global Stock has been a consistent performer and boasts a below-average expense ratio of 0.82%. Manager David Eiswert isn't wholly responsible for the fund's 10-year record, because he has only been in place since late 2012. But from 2013 through 2019, he has outpaced his peers in every calendar year.
Diversified emerging-markets funds
Charging into 2020.
China shares soared 25% last year, despite a simmering trade spat. The country represents a 34% slug of the MSCI Emerging Markets index, so that helped lift the benchmark to an 18.4% gain in 2019. Fidelity Emerging Markets has earned a top-10 rank in each of the four time periods; however, its longtime manager just left, so we're wary of recommending it. Consider instead Artisan Developing World. It has a shorter track record than we'd like (it launched in mid 2015). But the fund has an experienced manager, an average annual fee and risk-adjusted returns that beat the competition over the past one and three years. WCM Focused Emerging Markets has an impressive record, too. If only its 1.50% expense ratio were a little lower.
Regional and single-country funds
China, China, China.
A slower-growing Chinese economy, a trade war and an on-and-off stock market didn't hamper funds that focus on China shares. We like Matthews China Investor. The ride can be bumpy with this fund, but it has outpaced its rivals and the MSCI China index over the past three years. You can lower volatility and earn better risk-adjusted returns with a fund that invests across Asia. Matthews Asia Innovators Investor holds hefty slugs of tech and financial stocks; China, India, South Korea and Taiwan are its biggest country exposures. Investors looking for a solid Japan-focused fund should consider Hennessy Japan Small Cap, which focuses on small firms with clean balance sheets, above-average earnings growth that is sustainable and predictable, and strong cash flow.
Tech trounced everything else.
It has been hard to go wrong owning technology stocks. Tech firms in the S&P 500 overall returned north of 50% in 2019, and tech leads all other sectors in three-, five- and 10-year returns. Fidelity Select Semiconductors invests in firms that make microchips and similar electronic components--a red-hot business lately, though it should be noted that semiconductor stocks are prone to boom-and-bust cycles. Janus Henderson Global Technology invests in the U.S. and abroad, with more than half of revenues from the 68 companies in the portfolio coming from overseas. Investors with an appetite for risk have been rewarded for holding Eventide Healthcare & Life Sciences, which invests primarily in small and midsize biotechnology firms, whose prospects typically depend on regulatory approvals for drugs still in development.
The long and short of it.
Alternative funds seek returns that zig when stock and bond markets zag. Strategies are wide-ranging, but nearly all the top performers in this category are "long-short" funds, whose managers buy stocks they like and use derivatives to bet against stocks they expect to decline. AMG FQ Long-Short Equity uses subadviser First Quadrant's quantitative model to assess the relative attractiveness of stocks. The fund's long position contains a greater share of small- and mid-cap stocks than does the typical competitor. Boston Partners Long/Short Equity buys firms the managers see as undervalued while shorting overpriced names. The fund was recently bullish on Citigroup and bearish on Netflix. Schwab Hedged Equity uses Schwab's in-house stock ratings system to make calls on stocks. The fund is long on Microsoft and short on furniture retailer Wayfair.
Data compiled by Ryan Ermey
Copyright 2020 The Kiplinger Washington Editors