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By Jeremy Glaser and Shannon Zimmerman | 12-05-2012 01:00 PM

In 2012, Bigger Has Been Better

Morningstar's Shannon Zimmerman recaps how stock and bond funds have performed across categories this year and offers guidance on what investors should look for in 2013.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm here today with Shannon Zimmerman. He is an associate director of fund research at Morningstar. We are going to look at what funds have performed well so far in 2012 and his expectations for next year.

Shannon, thanks for talking with me today.

Shannon Zimmerman: Good to be with you, Jeremy.

Glaser: So, we're almost done with 2012. Let's take a look at the big picture. What categories have done well? What hasn't done so well?

Zimmerman: Well, so, among the diversified domestic-equity funds, our categories that track those funds, bigger has been better for the most part. We saw that earlier in the year when [Morningstar director of personal finance Christine Benz] and I last talked about how the lay of the land was looking. Large-cap funds--the large-cap value, growth and blend peer groups--were one, two, three at the top of the charts in terms of performance.

That's changed a little bit. You look at the top four, two are large caps, and two are mid-caps. Small cap has not done nearly so well as it has in the recent history anyway. It looks like maybe some of that valuation ground is being made up because after the very lengthy runup for small-cap stocks and the funds that invest in them, it's a little bit of a reversal of fortune with the bigger funds doing better.

Glaser: How about growth versus value?

Zimmerman: Earlier in the year, we saw, it wasn't a wide margin but a pretty consistent pattern where growth funds across each of the diversified categories--the large, mid-, and small--growth funds were trumping their value counterparts. That kind of evaporated over the last few months. And so, while market cap has been a determiner, the valuation spectrum, growth versus value, has not really had much of an impact. Large growth is the top-performing category on the year, but mid-growth and small growth are at the very bottom of the list.

I should say that all the categories did quite well on absolute terms. Everything is up more than 10% on the year, and there's not a huge margin between large growth, which on average has earned 14% in 2012 so far, and small growth, which is barely above 10%. So the margin of victory isn't huge, but in terms of that market-cap boost this year, it's been pretty consistent.

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