The Year in U.S. Equity Funds: Growth Was King in 2017
Tech-heavy large-growth funds fared best while small-value funds posted smaller gains.
U.S. stocks continued their relentless march upward in 2017, extending one of the longest bull markets in history. (Only the 1990s bull market lasted longer.) The year began with a lot of market optimism due to the business-friendly agenda of the incoming Donald Trump administration, and even though dysfunction in Washington ended up tempering many of those expectations, the economy continued to hum along and corporate earnings were generally solid. The S&P 500 gained 22% for the year to date through December 23, and the tech-heavy NASDAQ Composite Index returned 31%.
In general, growth funds performed better than value funds in 2017, and large-caps outpaced small-caps. Among the nine Morningstar Style Box categories, large-growth funds posted the highest average gains (28%), and small-value funds had the lowest (9%). This pattern was driven by the strong stock performance of big tech names such as
To investors with a long memory, all this may sound uncomfortably similar to the peak of the late-1990s bull market, when big tech stocks were red-hot and anything value-oriented was shunned. More than one person has compared the recent speculative frenzy in bitcoin to the dot-com bubble of the late 1990s, when Internet stocks with shaky to nonexistent business models were bid up to stratospheric valuations before crashing hard. On the other hand, some commentators have argued that this bull market is more substantial than the 1999 one, and that stocks aren't nearly as expensive. (For example, see here and here.)
Although just about everybody made money in 2017, some domestic stock funds performed much better than others. Here are some of the most prominent individual winners and losers of the past year, illustrating key trends.
Winners
Two other funds that benefited from 2017 market trends were
While the above funds took full advantage of a market favorable to their investing styles in 2017, other funds excelled despite facing major headwinds. Two good examples are the mid-cap value
Losers
The worst 2017 return of any U.S. stock fund covered by Morningstar Analysts belongs to
Fairholme and FPA Capital both have Neutral ratings due to the protracted nature of their recent struggles, but other funds performed poorly in 2017 for reasons that are more specific to this year. Silver-rated