Big Disparities Among the Biggest Stock Funds in the Bear Market
A look at how the industry's largest active equity mutual funds have fared in the coronavirus bear market.
|Editor's note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.|
An examination of the largest actively managed stock mutual funds shows what investors have been up against since fears of the coronavirus pandemic's economic impact triggered a global share-price rerating. There has been no place to hide, but growth stocks have generally fared better than their value counterparts. Energy and financials stocks have been bear traps, and travel restrictions and incessant pressure to avoid crowds and interpersonal contact have strangled leisure, gaming, and transportation-related shares. The largest active equity mutual funds haven't avoided steep losses, but their relative helpings of these sectors and industries have determined whether they have endured more pain than peers and indexes, so far. Markets have been volatile, changing the numbers daily, but here is a look at how the biggest active stock funds have fared through first days of April 2020.
Dodge & Cox Stock (DODGX) and Dodge & Cox International Stock (DODFX) have fallen the hardest in absolute terms among the 20 biggest active equity mutual funds. Their portfolio stances entering 2020 were not inconsistent with the firm's value approach, but they have proved suboptimal. For a few years now, Dodge & Cox managers have found what they thought were undervalued opportunities in financials and energy--primarily in the United States and Europe. The market's plunge has hit those sectors the hardest. The sharp drop in oil prices hammered Occidental Petroleum (OXY), a top-10 holding in Dodge & Cox Stock at the end of 2019. UniCredit (UNCFF), a big position in Dodge & Cox International Stock, is an Italian bank operating in a hot spot of the coronavirus outbreak. The funds still have strong 10- and 15-year records and have been in tough spots before only to rebound later. This will still test fundholders' resolve again, though.
Vanguard Primecap (VPMCX) also has taken it on the chin in absolute and relative-to-Morningstar Category terms. Its penchant for airline stocks and cruise lines has been a liability in the coronavirus bear market. The fund's modest positions in Royal Caribbean Cruises (RCL) and Carnival (CCL) each shed around 80% of their value through April 3, and a top-20 position in United Airlines (UAL) was down by more than 70%. That contributed to the investor shares' 26.8% loss from Feb. 20 through April 3, which was 2.2 percentage points worse than the Russell 1000 Growth Index. The $53 billion fund, though, has done better than expected given its 7.5% stake in airlines at year-end 2019, versus 0.2% for the index. The fund's 9.4% annualized gain over the past 15 years through April 3, 2020, trailed the index by a modest 7 basis points and beat the typical large-growth fund by nearly 130. Indeed, the fund set a precedent for bouncing back from crises after 9/11.
The Less Worse
There were no real winners when the best-performing strategies still lost around a fifth of their values in such a short time, but American Funds American Mutual (AMRMX) and Vanguard Dividend Growth (VDIGX) managed to lose less almost all of their category peers and relevant benchmarks.
American Funds American Mutual's tendency to keep a sizable stake of its assets in cash and bonds while rooting the equity portfolio in competitively advantaged dividend-payers once again contributed to its resiliency. The A shares' 21.5% loss from Feb. 20 through April 3 was almost 9 percentage points better than the Russell 1000 Value Index's more than 30% decline and placed in the large-value category's top 1%. Several stocks contributed to the fund's resiliency so far this year but none more than its top-10 position in Gilead Sciences (GILD). Gilead's shares rose, thanks in part to the promise its antiviral drug remdesivir might hold for combating the coronavirus.
Vanguard Dividend Growth has held its own. Since Feb. 20, the fund's 23.1% loss through April 3 was more than 4 percentage points better than the Russell 1000 Index and within a half of a percentage point of the Nasdaq U.S. Dividend Achievers Select Index. Owning only one energy stock and hefty stakes of dividend-paying consumer defensive and healthcare companies, such as Costco (COST) and Amgen (AMGN), helped. The fund's lone energy holding, Exxon Mobil (XOM), held it back versus its dividend-growth benchmark in that period, though, as did not investing in dividend benchmark constituent Abbott Laboratories (ABT). The fund's long-term record remains superior to the Nasdaq index, though.
The managers for MFS Value (MEIAX) target durable firms with below-average business risk that they believe can generate cash flow throughout the business cycle. That has given the strategy an edge during down markets, including during the downturn beginning in February. In the recent downturn, the strategy benefited from an underweighting in the plummeting energy sector, which the managers generally avoid because energy firms' revenues are closely tied to volatile commodity prices. It also benefited from solid picks across most sectors, but notably its industrials holdings held up relatively well.
The largest active equity mutual fund, American Funds Growth Fund of America (AGTHX), rued its modest energy and financials overweightings versus the Russell 1000 Growth Index. Between Feb. 20 and April 3, the fund's 24.8% loss was about 20 basis points worse than the Russell 1000 Growth's. The $159 billion fund, however, did edge its median rival within the large-growth category by 44 basis points. The fund's results over the past 10- and 15-year periods are mediocre, but its record over the trailing 20 years remains impressive. It held up especially well during the 2000-02 dot-com bear market when its value leanings were an advantage.
The $98 billion Fidelity Contrafund's (FCNTX) 24.1% loss from Feb. 20 to April 3 was roughly in line with the Russell 1000 Growth Index's 24.6% loss. The fund's decline was more than a percentage point shallower than its average large-growth category peer, though. Manager Will Danoff's consumer discretionary positioning has been advantageous: Fidelity Contrafund held none of the online travel agencies, such as Booking Holdings (BKNG) and Expedia (EXPE), which were down 37.5% and 59.9%, respectively, and few hard-hit brick-and-mortar retailers. Instead, it favored Amazon.com (AMZN)--the fund's second-biggest holding, as of Jan. 31--which was only down 12.2%.
The fund's relatively light stake (roughly 2.0% versus the Russell 1000 Growth's 5.8%) in capital-goods companies has helped a lot. Within the industry group, many of the benchmark's constituents have sustained painful losses. The fund sidestepped Boeing (BA), which nosedived more than 63% and was one of the index's most significant detractors.
That said, a hefty financials stake (13.2% versus the index's 3.1% share)--including JPMorgan Chase (JPM), down 38.2%; Bank of America (BAC), down 41.9%; and Citigroup (C), down nearly 52%--hindered Fidelity Contrafund.
The nearly $42 billion Fidelity Growth Company (FDGRX) fared worse than the Russell 1000 Growth Index, dropping 25.4% from Feb. 20 to April 3. Like Fidelity Contrafund, a relatively light stake (roughly 2%) in capital-goods companies helped. However, bite-size positions in consumer discretionary companies experiencing heavy losses--including Wayfair (W), down 37.2%; RH (RH), down 65.5%; and Carvana (CVNA), down 57%--hampered the fund.
T. Rowe Price Blue Chip Growth (TRBCX) lost about 25.2% from Feb. 20 through April 3, around the middle of the large-growth category and just slightly worse than the Russell 1000 Growth Index. Many of its travel-related picks got hit, including Royal Caribbean Cruises, which has lost more than 80% of its value in 2020. Wynn Resorts (WYNN), United Airlines, and Boeing have all suffered cataclysmic losses for the year to date. Its above-benchmark stake in financials hasn't helped, either. WellCare Health Plans WCG and software-related picks such as ServiceNow (NOW) and Atlassian (TEAM) have fared better.
T. Rowe Price Growth Stock's (PRGFX) 26.9% loss from the February market peak through April 3 ranked at the bottom of large-growth category and lagged the Russell 1000 Growth by more than 2 percentage points. The market has hammered its casino picks, including MGM Resorts (MGM), Wynn Resorts, and Las Vegas Sands (LVS), as well as retailers that have closed stores, such as Lululemon Athletica (LULU) and Nike (NKE). A small stake in energy has weighed on results, too. On the plus side, it does have a tiny position in Zoom Video Communications (ZM), up 86.9% for the year to date, and Amazon and Netflix (NFLX) have held up well.
Morningstar director of equity manager research Katie Reichart, senior analysts Alec Lucas, Robby Greengold, and Tony Thomas, and analyst Connor Young contributed to this report.
Dan Culloton has a position in the following securities mentioned above: VDIGX, DODFX. Find out about Morningstar’s editorial policies.
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