The Hottest Stocks Since January 2020 and the Funds That Bought Them

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.

But not all high flyers end up in top-rated funds’ allocations. Take Marathon Digital Holdings (MARA), whose share price surged over 400 times between January 2020 and June 2021. The company started off as a uranium mining company, transitioned to California real estate and then a patent investor and litigator before reinventing itself as a Bitcoin miner. The stock is “one of the crazier ones,” Shannon said.

Morningstar studied the top 20 performing stocks of the Russell 3000 since the start of 2020 through June 2021 and the actively managed mutual funds it classifies as a Morningstar Medalist funds, rated Bronze, Silver or Gold by its analysts, that that owned at least one of those stocks over the 18 months between January 2020 and June 2021.

Medalist funds are considered those likely to outperform their peers and benchmarks on a risk-adjusted basis over market cycles of five years or more.

Below is a list of the hottest stocks that attracted the most Medalist funds from January 2020 through June 2021, their price appreciation and the number of Morningstar Medalists who bought them and still own them. Note that GameStop is not included even though its price soared 3,422% during that period. It was bought by only six Medalist funds, though five currently own shares.