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Home>Research & Insights>Investment Insights>Second Quarter in U.S. Stock Funds: Growth on Fire

Second Quarter in U.S. Stock Funds: Growth on Fire

Growth funds and technology dominated, while value and energy struggled. 

Katie Rushkewicz Reichart, CFA, 06/30/2017

As the second quarter winds to a close, the market still favors U.S. equity funds. Eight of the nine Morningstar Style Box categories have posted solid gains for the quarter to date through June 27, with small value’s slightly negative quarter-to-date category return the outlier.  

U.S. growth equity funds have continued to dominate value offerings in 2017, reversing the pattern seen in 2016. Large-growth was the top-performing diversified U.S. equity Morningstar Category for both the quarter and year to date as of late June, with mid- and small-growth not far behind. Strong performance in growth-oriented sectors, including technology, fueled big rewards for many funds, though tech stocks pulled back a bit toward quarter-end.

The energy sector, a value haven and market darling in 2016, changed course in 2017 as oil prices slid during the quarter. Commodity-related stocks, such as precious metals and natural resources, also were losers in this short span. Financials stocks, which had a big tailwind in late 2016 on optimism about the potential for less regulation under the Trump administration, also cooled off.

Winners
Morgan Stanley Institutional Growth MSEQX, which holds nearly half of its assets in technology stocks, was up almost 11% for the quarter through June 27, landing at the top of the large-growth category--quite different from its 2016 showing, when it posted a loss. Top position Tesla TSLA continued its ascent, and about half of its holdings posted double-digit gains for the quarter.

Fidelity OTC FOCPX gained 9.4% for the quarter to date, more than doubling its Nasdaq Composite benchmark as the Nasdaq-traded stocks it favors rallied.

T. Rowe Price Blue Chip Growth TRBCX and T. Rowe Price Institutional Large Cap Growth TRLGX landed in the large-growth category’s top decile, getting an extra boost from out-of-benchmark Chinese Internet names Tencent and Alibaba BABA.  

Fidelity Growth Company FDGRX benefited from a huge position in Nvidia NVDA--a holding since 2008--as well as a mix of smaller growth plays, including Wayfair W.

Baron Partners BPTRX, a mid-growth fund, was up more than 14% for the quarter to date through June 27. Beyond a huge position in Tesla (18% of assets as of March), it also benefited from Zillow Group ZG and Panera Bread PNRA, which surged after agreeing to a buyout with JAB Holdings during the quarter.

Katie Rushkewicz Reichart is a senior mutual fund analyst with Morningstar.

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