Equity Funds Rule in 2016: Morningstar

Though the past 12 months have been full of unexpected news, they generally have been good for U.S. equities, according to Morningstar. In fact, the S&P 500 is up about 13% through Dec. 23. Plus, the small-cap-oriented Russell 2000 Index has roared ahead over 22%.

How have these gains played out in different sectors and fund groups? Morningstar analyst Andrew Daniels, a CFA and CMA, breaks down the results in an online report on equity performance, which he published Friday.

Top Sectors

Within the Russell 3000 Index, energy and basic-materials stocks “led the way in 2016,” Daniels says. Both groups improved more than 23%. This gain came after several years of horrific performance, he points out.

Commodity prices dropped sharply in recent years as the world’s oil supply topped demand and concerns about global economic growth grew. But after the first few months of the year, that picture changed.

Within the energy group, the Morningstar analyst says, top performers include midstream oil companies that move the commodity, such as Oneok and Spectra Energy, along with integrated oil giant Chevron.

As for basic materials, U.S. Steel and AK Steel soared about 350% as the U.S. imposed tariffs on Chinese steel imports.

In financials, Comerica and Regions Financial have seen jumps of over 50%. The group overall or is up 22%; investors are convinced that a Donald Trump presidency means higher interest rates and a rollback of Dodd-Frank regulations, Daniels says.

Health care, which has drawn the attention of politicians from both parties, was the best-performing sector from 2013 to 2015, but it is down nearly 3% so far this year.

Some biotech stocks, like Alexion, Regeneron and Vertex are off more than 25% as the government began looking more closely at drug-pricing practices.

As for dividend-heavy consumer defensive and real estate stocks, they also have had a poor showing in 2016 vs. other sections, though both are still up 6% or more thanks to raising interest rates.