3 Good Funds Having a Great Year

It's already the middle of the fourth quarter of 2020. Today, we're looking at three highly rated funds having great years, with returns that currently land near the top of their respective categories.

Morgan Stanley Institutional Discovery is a top performer this year among funds in Morningstar's mid-cap growth category. The fund's concentrated, high-growth style lends itself to boom-and-bust returns over short time periods. And 2020 has been quite a boom for the fund, with top holdings like Zoom Video Communications and Shopify posting outsize gains this year. According to Morningstar's Katie Reichart, the fund's relatively concentrated and sector-agnostic portfolio means investors in this fund need a stomach for volatility. That being said, we like the managers' process that blends companies that dominate their markets with less-established industry disruptors.

Fidelity Growth Company, which is closed to new investors, is a standout in Morningstar's large-growth category this year. Sizable positions in stocks like Apple and Amazon have powered returns. Steve Wymer has managed this portfolio for more than two decades, focusing on companies with resilient business models that can fuel rapid growth over a three- to five-year period. He's willing to invest heavily in profitless firms he thinks possess extraordinary potential, too, and allocates bite-sized portions of the fund's assets across dozens of young small caps--including some privately held firms, like SpaceX. Robby Greengold, who covers the fund for Morningstar, calls the strategy "unique" but points out that such high-multiple stocks carry high risks of disappointment if their earnings-growth expectations don't pan out.

Lastly, PGIM Jennison Growth is also from Morningstar's large-growth category, and it, too, is having a banner year. Stakes in market darlings like Tesla have bolstered returns. The managers typically run a somewhat compact 55- to 70-stock portfolio dominated by fast-growing giant caps trading at relatively high price multiples. Management specifically looks for market leaders with durable, above-average top-line growth prospects. They favor businesses with healthy financials; strong research and development capabilities; and defensible franchises. Morningstar's Robby Greengold says that consistently good stock-picking over the long haul has made for an enviable track record at this fund.