A common investment vehicle is the mutual fund. However, as many investors dig deeper in their investment path, they tend to overlook this portfolio staple. They pick individual stocks or grab some exchange-traded funds. But there are still mutual funds to buy out there.
Not everything has to be Vanguard and basic, either.
There are plenty of mutual fund offerings that will allocate investors’ funds to specific themes and industries. As such, not everything has followed the performance of the S&P 500.
While there are many underperformers, there are also many outperforming mutual funds to peruse. So I did just that, filtering and looking for the best of the bunch.
I didn’t want mutual funds with investment minimums in the millions, making them untouchable for most individual investors. And obviously, they had to be open to new investors. Otherwise, what’s the point?
Of the thousands of mutual funds out there, the list was whittled down to seven. Here are the mutual funds to buy that have been top performers this year.
- Morgan Stanley Institutional Discovery (MUTF:MACGX)
- American Beacon Ark Transformation Innovation Fund (MUTF:ADNPX)
- Baron Global Advantage Fund Retail Shares (MUTF:BGAFX)
- Delaware Small Cap Growth Fund (MUTF:DSGDX)
- Baron Focused Growth Fund (MUTF:BFGFX)
- Quantified STF Fund Investor Class (MUTF:QSTFX)
- Transamerica Capital Growth Fund Class (MUTF:ILLLX)
Mutual Funds: Morgan Stanley Institutional Discovery (MACGX)
Let’s start with the cream of the crop. The Morgan Stanley Institutional Discovery fund has been one of this year’s top-performing, non-levered mutual funds.
The fund is up an overwhelming 107% so far this year. Say what you want about 2020, but investors in this name likely don’t have many complaints.
While we’re at it, let’s get some benchmark numbers out of the way. The S&P 500 is up about 5% so far this year and 14% over the past 12 months. From peak to trough, it fell roughly 35.5% during the novel coronavirus selloff.
The MACGX fund did fall a bit more than the S&P 500, losing about 110 basis points more. Ultimately, it fell 36.6% from its pre-coronavirus highs. But I will take a bit of underperformance on the downside, to have such a vicious move to the upside.
I’m not cherry-picking its performance, either. Over the past year, the fund is up 84%. Over the last three, five and 10-year periods, it has averaged returns of 47%, 29% and 19%.
Where do I sign up?
American Beacon Ark Transformation Innovation Fund (ADNPX)
Trailing closely on the heels of the MACGX fund is the American Beacon Ark Transformation Innovation Fund.
The ADNPX fund is up 91.8% so far this year, trailing the first fund on our list by less than 100 basis points. However, this is one of the younger mutual funds on the list, with a fund inception date of Jan. 27, 2017.
It has not disappointed, though. It boasts an average return of 39.7% over the last three years, on top of this year’s stellar performance. It’s also a five-star rated fund according to Morningstar.
Investors may recognize the fund name and realize it is Ark Investment Management behind the picks. Ark is known for picking growth stocks that, while capable of being volatile, can generate intense returns.
Perhaps one of the firm’s best-known picks is Tesla (NASDAQ:TSLA), which actually makes up about 10% of this mutual fund. Investors who want exposure to Tesla or want to avoid it, should know that about ADNPX.
If the automaker keeps on flying higher, it will continue to send this fund higher too. Should Tesla falter instead, it will have a negative impact on it.
Mutual Funds: Baron Global Advantage Fund Retail Shares (BGAFX)
I wanted to step out of the ultra-performers for a minute to look at the Baron Global Advantage Fund Retail Shares.
Now, the BGAFX fund is up “just” 55% so far this year. While that notably lags the first two funds on the list, it’s well ahead of the S&P 500. I can’t emphasize that enough. Over the long term, it’s a big winner too.
It has generated average returns of 33% and 27% over the past three and five years, respectively. But what I really like is how it has performed on the downside. While it suffered a peak-to-trough decline of 29.5%, the rebound was quick and fierce.
The BGAFX ended lower by 7.7% in the first quarter of 2020, while the S&P 500 plunged 20%.
I also like that the fund has international exposure. Alibaba (NYSE:BABA) is its top holding at 6.15%, while MercadoLibre (NASDAQ:MELI), TAL Education (NYSE:TAL) and GDS Holdings (NASDAQ:GDS) are all non-North American holdings in the fund’s top 10.
Overall, roughly 57.5% of the fund is comprised of U.S. companies. That leaves plenty of non-U.S. exposure in this fund for investors looking to gain some international diversity while still outperforming the main U.S. index.
Delaware Small Cap Growth Fund (DSGDX)
Another fund worth watching? The Delaware Small Cap Growth Fund. Like the name states, this company focuses on smaller-cap stocks, reducing exposure to the mega-cap growth names fueling so many funds higher right now.
To be clear, there’s nothing wrong with exposure to the biggest stocks in the market. But if we “diversify” with three or four funds that all have top allocations to these companies, it’s not really diversification.
If you’re not too familiar with those names, that’s okay. What’s important is the performance of this five-star rated fund. Up 57% so far on the year, the DSGDX is on fire. The fund has an average return of 36% over the past three years, as well.
This mutual fund could be a good way to expand one’s portfolio and allocate to the smaller market-cap stocks.
Mutual Funds: Baron Focused Growth Fund (BFGFX)
When we do focus on growth, something like the Baron Focused Growth Fund (BFGFX) comes to mind.
With a minimum initial investment of just $100, this fund is accessible to just about every investor out there. Those who have bought in have been enjoying a strong year, too.
Up almost 70% so far in 2020, the Baron Focused Growth Fund has been on fire. Unlike many of the names on this list, the fund isn’t new. With an inception date of June 30, 2008, we’ve had some time to see how well this name has been managed. For the last 10 years, it has generated an average return of 19%.
Anyone taking a stake in this fund should give the portfolio a look, to make sure it is really for them.
Quantified STF Fund Investor Class (QSTFX)
I’m not purposely avoiding funds with exposure to mega-cap tech stocks. But I do like to find the funds that have outperformed the market, while also giving us some diversification.
That brings us to the Quantified STF Fund Investor Class.
The Quantified STF Fund is comprised of many varying bond funds. That ranges from corporate debt to short-term debt in various bond instruments, like U.S. Treasuries. That is a step away from the usual single-stock allocation, right?
Clearly, the fund managers know what they are doing. The five-star Morningstar rated fund has churned out a year-to-date return of 71.5%. In Q1, it shed just 2%, dominating the S&P 500’s 20% decline.
From peak to trough, the QSTFX fell just under 25% during the Covid-19 selloff. So it outperformed the broader market on the downside and is beating it to the upside.
In November, it will mark five years since the fund’s inception. Since launching, the QSTFX has generated an annual return of 22.3%. Given the diversity and the outperformance, this may be one to keep on the radar.
Mutual Funds: Transamerica Capital Growth Fund Class (ILLLX)
It’s last but it’s certainly not least. The Transamerica Capital Growth Fund Class has been robust this year, up 79.8%.
The ILLLX has generated a three-, five- and ten-year average return of 34.5%, 27% and 22.75%, respectively. If a hedge fund had those kinds of numbers, Wall Street would fawn over it. If it was an individual investor, they would be considered a high-value stock selector.
The fund has plowed its resources into some of today’s top growth stocks. That includes Shopify (NASDAQ:SHOP), Square (NYSE:SQ), Amazon (NASDAQ:AMZN), Zoom Video (NASDAQ:ZM) and Spotify (NYSE:SPOT). These holdings make up almost 30% of the fund.
Now perhaps some of those stocks — like Zoom — come back to earth. Or perhaps they become one of the market’s long-term winners.
There are some downsides to ILLLX. That includes a $1,000 minimum investment, which could be a hurdle for some investors. Further, it has a 1.89% expense ratio, which is generally found to be unattractive among most investors.
However, given the fund’s strong outperformance and its long history, I think this one may be worth a look. Lastly, during the coronavirus correction, the ILLLX fell 33.5%. That’s a touch better than the overall market, but it’s really about in-line. Despite that, the move to the upside has been breathtaking in comparison.
On the date of publication, Bret Kenwell held a long position in SHOP.