Russel Kinnel, director of fund research for Morningstar, has shared his list of winners for the first half of 2015.
“I looked at the top and bottom performers in the Morningstar 500 by total return and ranking relative to their Morningstar Category,” Kinnel explained in a recent Morningstar commentary.
“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,” he explained.
Still, the fund expert cautioned: “This isn’t a buy list. That’s what our Morningstar Medalists list is for.”
For advisors and investors who’ve been following different equity sectors, especially the run-up in biotech stocks, the winners should not come as a huge surprise.
Topping the list is the T. Rowe Price Health Sciences Fund (PRHSX), with a total return of 20%.
“Yes, it sounds like a broken record, but health care did well, and smaller biotech and pharma names did even better,” Kinnel stated. “Mergers keep driving the market higher, and this fund’s emphasis on the small/mid-cap end of health care has been a boon.”
Coming in second is the Century Small Cap Select Fund (CSMVX), with returns of 14%.
This fund, which lagged its peers in 2013 and 2014, recently boosted its health care exposure, while also adding some tech and bank stocks. Nonetheless, Kinnel says, the fund’s three-year record is subpar despite its breakout in the first two quarters of the year.
The third-ranking fund for 2015 is the Vanguard Health Care Fund (VGHCX), with a 14% total return.
“Mega-cap health-care stocks haven’t been too shabby, either,” the Morningstar analyst said. “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.”
In the fourth-place spot is the Fidelity Select Health Care Fund (FSPHX), with returns of 13%. It has benefitted from holdings such as Boston Scientific and Valeant Pharma.
Next on the list is Scotia Dynamic U.S. Growth (DWUGX) with a 13% total return.
Kinnel says the super-aggressive fund is focused on companies with the highest earnings growth rates. That means it’s “pretty when that clicks, but taking on a lot of price risk means it has a severe downside.” Also, it’s worth noting that the fund has a high turnover ratio of 277%.
Funds that performed the best relative to their Morningstar Categories include the Dreyfus Opportunistic Small Cap (DSCVX) at 10%. This portfolio zooms in on technology, industrials, consumer cyclicals and financials, with a mix of value and growth name.
Ken Heebner’s CGM Focus Fund (CGMFX), up 6% year to date, had a short against Treasuries, which has helped it this year, along with its long positions in Fiat Chrysler (FCAU) and Lennar (LEN). The fund’s turnover is 266%, according to Morningstar.
Sequoia (SEQUX), a closed fund, improved 11% in early 2015, with 26% of its assets in Valeant Pharma. “That’s pretty much the whole story,” said Kinnel.
The Fidelity Small Cap Stock Fund (FSLCX), improved 9% in the first two quarters of 2015.
“Lionel Harris’ focus on quality stocks has led the fund to some winners from a wide array of industries,” Kinnel wrote. “He keeps individual stock bets small, but he does have some sector biases. In particular, he’s been leaning toward technology and financial stocks.”
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