Skip to Content
Fund Spy

Second Quarter in U.S.-Stock Funds: The Winners and Losers

The Brexit made waves.

After a volatile first quarter, U.S. stocks steadily rose for most of 2016's second quarter until Friday, when stocks were hammered across the globe after Britain unexpectedly voted to leave the European Union. This knocked the S&P 500 into negative territory for the quarter to date through June 24, though the Russell 2000 Index is still up 1.5%. The Federal Reserve shelved plans to raise short-term interest rates at its mid-June meeting amid the Brexit vote and the May jobs report that indicated U.S. employers added just 38,000 jobs--the worst month since 2010.

Brent crude prices temporarily climbed above $50 per barrel for the first time since November 2015, and prices are currently up 22% for the quarter to date. As a result, the equity energy Morningstar Category posted a gain of 9.4%. Waddell & Reed Energy (WEGAX) has outperformed 88% of its equity energy peers this quarter thanks to its large holdings in  Continental Resources (CLR) and  Halliburton (HAL). The equity precious-metals category has also benefited from higher commodity prices, climbing more than 33% during the quarter. Oppenheimer Gold & Special Minerals (OPGSX) has outperformed 75% of its equity precious-metals peers this quarter because of its sizable positions in  Newmont Mining (NEM) and Royal Gold (RGLD).

The hunt for yield in this persistently low interest-rate environment led the dividend-heavy utilities and real estate categories to post gains of 2.9% and 1.3% this quarter, respectively. Hennessy Gas Utility (GASFX) has outperformed 99% of its utilities peers this quarter--Northwest Natural Gas (NWN) and Southwest Gas (SWX) were both up more than 10%. Fidelity Real Estate Income (FRIFX) outperformed 96% of its real estate peers this quarter thanks to large holdings in Senior Housing Properties Trust (SNH) and Lexington Realty Trust (LXP).

The consumer cyclical category was the worst-performing sector category this quarter, dropping 4.0%. Several specialty retail stores such as  L Brands (LB),  Gap (GPS), and  Urban Outfitters (URBN) are down more than 20% this quarter. The technology sector category has also been a weak performer this quarter, dropping 1.9%. Numerous large technology stocks reported disappointing first-quarter earnings results, and as a result  Apple (AAPL) is down nearly 14% this quarter, while  Microsoft (MSFT) and  Alphabet (GOOG) are down more than 9%.

Morningstar Style Box Categories
After dropping 4.4% during the first quarter, the small-growth category was the top-performing Morningstar Category in the Morningstar Style Box for the second quarter, gaining 1.3%.  Champlain Small Company (CIPSX), with a Morningstar Analyst Rating of Silver, gained 6.4% through June 24. Contributors to performance include software technology firms Qualys (QLYS) and Pros Holdings (PRO), which both rose more than 18%--both had dropped more than 20% in the first quarter.

The small-value category also posted positive results in the second quarter, gaining 0.3%. Wells Fargo Special Small Cap Value (ESPAX), which gained 2.0% for the quarter to date, outperformed 87% of its small-value peers. Overweightings to the materials sector and industrial machinery firms--specifically Kadant (KAI) and Douglas Dynamics (PLOW)--contributed to results.

Among mid-cap blend funds, concentrated Silver-rated  Longleaf Partners Small-Cap (LLSCX) rose 2.8% and outperformed 98% of its peers. The main driver was its double-digit position in  Dreamworks Animation (DWA), which rose more than 60% after announcing it would be acquired by  Comcast’s (CMCSA) NBCUniversal division. On the flip side, concentrated Neutral-rated  Janus Contrarian (JACNX) fell 7.0%, faring worse than 97% of its peers because of its 9% combined weighting in airlines  United Continental (UAL) and American Airlines Group (AAL)--both stocks are down more than 30% this quarter.

The large-value category did better than the large-growth category for the quarter to date, bucking the trend of recent years. Bronze-rated  Artisan Value (ARTLX) gained 2.9% this quarter, which is better than 97% of its large-value peers. Its overweightings to the poor-performing energy and basic materials sectors have hurt results in recent years, but they contributed to performance this quarter as those sectors have rebounded. Oil and gas producer  Devon Energy (DVN) and gold-miner  Kinross Gold (KGC) are both up more than 30% this quarter.

The weakest-performing category in the Morningstar Style Box for the second quarter was large-growth, which dropped 2.0%.  Polen Growth (POLRX), on which Morningstar recently initiated coverage with a Morningstar Analyst Rating of Bronze, underperformed 98% of its large-growth peers for the quarter to date, falling 5.4%. Despite being a top performer since the fund’s inception in 2010, the fund was hurt this quarter by its large weightings to  Nike (NKE) and  Starbucks (SBUX), which fell 14% and 8%, respectively.

It wasn’t all bad in the large-growth category, though. Bronze-rated  Columbia Select Large Cap Growth (UMLGX) outperformed 98% of its large-growth peers, gaining 2.4%, after a poor first quarter. The fund had a sizable position in  LinkedIn (LNKD), which spiked 66% this quarter after announcing it would be acquired by Microsoft.

For additional details on Morningstar Categories, please click here

Andrew Daniels has a position in the following securities mentioned above: MSFT, AAPL. Find out about Morningstar’s editorial policies.