The Year in U.S. Equity Funds, 2018

The long bull market for U.S. stocks showed signs of ending in 2018, with some parts of the market already falling into bear-market territory by late December, and other parts threatening to do so. The U.S. economy remained healthy for the most part, and for most of the year stocks marched upward amid healthy corporate profits. But in the fourth quarter, the Trump Administration’s trade war with China, along with concerns over rising interest rates and general geopolitical uncertainty, spooked the markets and caused stock prices to tumble. A post-Christmas rally erased some of the losses, but through Dec. 27, the S&P 500 was down 5% for the year to date, including a 14% loss in the fourth quarter. The Russell 2000 Index of small-cap stocks was down 12% for the year to date and 21% in the fourth quarter, while the NASDAQ Composite was down 4% and 18% in the fourth quarter.

Large-cap stocks outperformed small- and mid-caps this year, as they often do when markets get nervous. Growth performed better than value, as many growth stocks benefited from strong earnings and a perception that they’ll still be able to do well in a slowing economy. Of the nine Morningstar Style Box categories, large-growth funds had the best year-to-date returns through Dec. 27 (down 3%), while small-value funds had the worst (down 16%). In 2017, large-growth funds were also the big winners, driven by enormous gains from widely held giants

Among sector funds, utilities, healthcare, and real estate held up well, as investors flocked to those stocks for their perceived safety and healthy dividend yields. Technology funds also performed relatively well, for the same reasons noted above for growth stocks in general, though in absolute terms the category’s average loss of 4% was far behind its 35% average gain in 2017. On the other side of the coin, energy sector funds lost an average of 28% for the year to date through Dec. 27, the worst returns of any Morningstar fund category. Commodities in general took it on the chin in 2018, with natural resources, equity precious metals, and energy limited partnership funds also among the year’s worst performers.

In the context of these trends, here are some of the biggest winners and losers of 2018 among individual domestic equity mutual funds, with an emphasis on Morningstar Medalists (those with Morningstar Analyst Ratings of Gold, Silver, or Bronze).

Winners

The list of the year’s top-performing individual funds is dominated by growth funds, especially those that benefited from the trends described above. A good example is Silver-rated

Some of the top-performing large-growth funds of 2018 similarly relied on certain popular sectors. For example, Bronze-rated

Two of the best-performing nongrowth funds of 2018 were Gold-rated

Losers

Among the worst-performing domestic stock funds of 2018, one that epitomizes the year’s negative trends is Bronze-rated

Silver-rated

Finally, it’s worth mentioning