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By Christine Benz and Shannon Zimmerman | 12-19-2012 12:00 PM

Can Stock Funds Continue Their Rally in 2013?

Morningstar's Shannon Zimmerman recaps this year's equity-fund runup, noting the double-digit returns, the investor migration to passive products, and the trends in international categories.

Christine Benz: I am Christine Benz for Despite concerns about the impending fiscal cliff, stocks have actually enjoyed very nice gains so far in 2012.

Joining me to provide a recap of equity-fund performance so far this year is Shannon Zimmerman. He is associate director of fund analysis with Morningstar. Shannon, thank you so much for being here.

Shannon Zimmerman: Very good to be with you at the end of the year.

Benz: Shannon, it's been a year where the market has really lifted all boats. When we look across stock-fund performance, what we see really is double-digit gains across the board. I'm wondering, when you drill in a little bit, if you look at, say, large caps versus small caps, do you see any gradations there?

Zimmerman: It's more subtle than in some market environments where the differences between small cap and large has been quite huge. This year though--and we talked about this earlier in the year too--one pattern that has persisted is that it has been better to be bigger.

So, larger-cap funds have generally fared better than smaller-cap funds. The best-performing category in the year--and it really was kind of neck-and-neck--is mid-cap value. But the second best-performing category is large growth. And the smaller-cap diversified categories are all toward the back of the list in terms of performance year to date. But as you say [it has been] a really fine year in absolute terms. All the categories on the domestic-equity side--the diversified and the more narrowly tailored funds--are up double digits.

Benz: How about the growth-versus-value spectrum. Do you see any gradations there?

Zimmerman: Not so much, in terms of the valuation spectrum. The patterns that we saw earlier in the year where growth was trumping value, that's kind of faded away. It was subtle to begin with, and now it doesn't exist at all.

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