Heading into this year, a U.S. stock fund posting single-digit gains would have been a disappointment to most investors. In 2019, 2020, and 2021 many mutual funds posted gains of 20% or more each year.
When it comes to 2022′s returns, however, any stock fund finishing the year in positive territory has accomplished a significant feat. With the overall stock market down more than 20% for the year, only five of the 548 funds covered by Morningstar analysts have squeaked out positive returns as of Dec. 19, when measured by the cheapest share class.
What do the best-performing funds of 2022 have in common?
The backdrop for stocks was one where soaring inflation, rising interest rates, and fears of recession sent most of the market into negative territory. The energy and utility sectors are the only two showing positive returns, while the communication services and technology sectors have performed the worst. These trends tended to benefit value funds, including dividend funds, and provided a real headwind for funds focused on fast-growing stocks.
Pulling back the lens and looking at returns for the three- and five-year top performers offers a different picture. Thanks to big gains in previous years, some growth funds managed to hold on to the top spots on the podium.
For this article, we screened from among mutual funds covered by Morningstar analysts that have ratings of Bronze, Silver, or Gold. We ranked performance using the lowest-cost share class of each fund.
2022′s Best-Performing Stock Funds
A handful of value funds lead all Morningstar Medalists this year.
WisdomTree U.S. High Dividend ETF (DHS) landed at the top of podium. The $1.4 billion fund is up 5.9% for the year. “Energy stocks are a tailwind for the portfolio,” says Morningstar associate manager research analyst Zachary Evens. “Year-to-date through Nov. 30, the fund’s energy stake was on average 19.4% whereas the benchmark’s stake was 7.5%,” he says. Exxon Mobil (XOM), up 77.7% this year, and Chevron (CVX), up 50%, have contributed to the fund’s success.
“Avoiding toxic tech stocks also helped performance,” he says.
Avoiding hard-hit communication services stocks helped BNY Mellon Dynamic Value (DRGYX). As of June 2022, Alphabet (GOOGL), the parent company of Google, was the fund’s only communication services holding, writes Morningstar manager research analyst Drew Carter. Instead, the portfolio was overweight the financials and healthcare sectors as of June 2022. The $2.4 billion fund is up 1.1%, while the average large-value fund is down 7.3%.
3-Year Best-Performing Stock Funds
Though value strategies fared relatively well in 2022, over the past three years the picture is more mixed between value and growth strategies. Invesco Small Cap Value (SMVSX) returned the most of any medalist fund, with the $2.4 billion fund gaining an annualized 15.9% over the past three years. This year, a nearly 10-percentage-point overweight to the energy sector has aided the fund, says Morningstar analyst Andrew Redden. “And over the past three years overweight allocations to industrials and energy coupled with underweight allocations to tech and financial services helped results,” he says.
Not far behind is the $11.6 billion Fidelity Growth Company (FGKFX). Even with a loss of 32.1% in 2022 the fund is up 12.1% per year over the past three years. “The fund’s underperformance (in 2022), while disappointing, is mostly in line with what investors should expect from the strategy, given its style, typical exposure to companies with high volatility, and an unfavorable macroeconomic backdrop,” writes Morningstar strategist Robby Greengold. The fund’s previous strong performance, gaining 68.7% in 2020, has helped buffer losses for longer-term investors. “Typically, sensitive to the market’s daily gains and losses, the fund tends to excel on the upside,” writes Greengold.
5-Year Best-Performing Stock Funds
When it comes to five-year track records, the long dominance of growth funds becomes still clearer. The $36.8 billion JPMorgan Large Cap Growth (JLGMX) has returned an annualized 14.1% over the past five years. The strategy roared back following the market’s big first-quarter 2020 drawdown, with the institutional shares gaining a whopping 100.6% versus the benchmark’s 81.5%, thanks to stock picks such as Tesla (TSLA). This year the fund is down 22%, better than the average large-growth fund.
More recently, the managers have lightened their technology stake. “The managers pared back stakes in Tesla and Nvidia (NVDA) in early 2021, as well as presciently trimming Meta Platforms (META) later in the year before its early-2022 plummet,” says the latest fund report.
T. Rowe Price All-Cap Opportunities (PNAIX) also made similar moves. The fund is up 13.3% on an annualized basis the past five years and down only 21.9% in 2022, while the average large-growth fund is down almost 30%. “In 2021, the managers have made pivots that paid off,” writes Morningstar senior manager research analyst Adam Sabban. “High valuations, signs of market excess, and indications that the Federal Reserve would take inflation more seriously led the managers to cut ties with many strong-performing growth stocks whose market values mostly relied on expectations of profits far in the future. It dodged substantial losses by selling companies such as Shopify (SHOP), StoneCo (STNE), DocuSign (DOCU), and Wix.com (WIX) before 2022′s rout in growth stocks.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.