What You Need to Know
- Many gained several hundred times their January 2020 prices over the next 18 months.
- They weren't only meme stocks but stocks tied to COVID-19 vaccines and treatments.
- Traditional actively managed mutual funds were among their buyers.
The hottest U.S. stocks from January 2020 through June 2021 are not just the popular gaming or blockchain-related stocks but also stocks tied to COVID-19 vaccines and treatments, plus the online discount retailer Overstock, which has a struggling blockchain-based digital assets trading platform.
Many were penny stocks that cost just a few dollars per share or less In January 2020 and gained more than 1,000% over the next 18 months, according to a new report from Morningstar.
Moreover, some were bought by long-established top-performing mutual funds such as Vanguard Explorer (VEXPX), Fidelity Blue Chip Growth Company (FDGRX) and JPMorgan Small Cap Core (VSSCX), even though such funds historically avoid the highest-performing stocks because they often lose more than half their peak value in the next few years.
“It is not uncommon to see managers eschew the highest performers, as they are often penny stocks teetering on insolvency whose stock gains are largely the product of their tiny starting bases,” wrote equity strategies analyst Jack Shannon. “But this period was different. Instead of two to three stocks in the Russell 3000 gaining 1,000-plus percent in any given month over the trailing eighteen months, sixteen did,” and “at least half cannot be labeled as mere penny stocks,” wrote Shannon.
Some top-rated actively managed mutual funds, especially quantitative funds, can’t afford to shun super high momentum stocks. Others don’t want to miss out on owning stocks that have joined a major market index, to which they’re benchmarked or are on the verge of joining.