Last year was tough for mutual funds on two fronts. First, most fell in value. Second, outflows persisted throughout 2022.
Consider what Refinitiv Lipper wrote about mutual fund flows in its December 2022 FundMarket Insight report: “Investors were net sellers of equity funds for the nineteenth consecutive quarter (–$161.6 billion for fourth-quarter 2022) … And for the fourth quarter running, investors were net redeemers of taxable bond funds (–$115.1 billion). Municipal bond funds also witnessed net outflows for the fourth straight quarter … For 2022, mutual funds (ex-ETFs) have handed back a preliminary $949.4 billion.”
Actively managed funds were particularly the target of investor outflows. In December 2022, Morningstar described such funds as “on track for one of their worst years ever.” Morningstar estimated, at that time, that $805 billion worth of investor dollars had flowed out of actively managed funds.
Flows are a measure watched by those in the fund industry. When an investor buys shares of a mutual fund, those dollars are measured as inflows. When an investor sells (redeems) shares of a mutual fund, those dollars are measured as outflows. Net flows are inflows minus outflows. Though net flows vary based on market conditions, fund managers mostly want flows to be positive.
Fund performance obviously played a big part. There is a lot of red in the 2022 return columns. Out of the more than 50 mutual fund categories covered in this year’s guide, just three realized positive returns last year. They were equity energy (up 47.4%), natural resources (up 8.2%) and utilities (up 0.3%).
The worst-performing category was technology. Mutual funds focused on the battered sector lost an average of 37.2% last year. While tech funds did enjoy strong returns in 2020 and 2021, the three-year average annual return for the tech category was lower than the average for utility funds at the end of 2022—4.5% compared to 5.3%, respectively. Utilities funds did this with less volatility too. Utility funds’ total risk index is 1.06 versus 1.50 for technology funds.
These are obviously short-term performance numbers. Technology funds have beaten utility funds by a wide margin over the last 10 years. The disruptive nature of technology combined with its comparatively lower capital costs give technology stocks an edge in terms of growth potential.
What the three-year numbers do show you is the importance of looking past all the red in this year’s guide. Fund performance is always impacted by the type of strategy followed. There is little a fund manager can do when most asset classes are down and the fund’s objective calls for them to be fully or mostly invested at all times.
View All Funds With Detailed Data
Expanded Fund Data interactive lists of funds by category and detailed data on each fund. Spreadsheets for each asset class can be accessed under Expanded Fund Listings.
While past performance is no indication of future performance, it may attest to the quality and consistency of fund management.
Fidelity and Goldman Sachs Lead the Top Performers
Table 1 shows the 50 top-performing no-load funds for 2022. Three of the top five funds are from Fidelity and the other two are from Goldman Sachs. A key similarity among them was targeting companies in the energy sector.
Fidelity Select Energy (FSENX) was the biggest gainer, jumping 63.0% in 2022. These big gains followed a 55.3% rebound in 2021. The actively managed fund targets what it describes as free cash flow generating energy companies trading at attractive levels. Though Fidelity Select Energy has A+ Investor Grades of A for three-, five- and 10-year return periods, its total risk index of 2.57 implies a high level of volatility. The fund’s expense ratio of 0.77% is low for its category, though not cheap on an absolute level.
The Fidelity Natural Resources fund (FNARX) follows a similar investment strategy in targeting the broader natural resource category. The Fidelity Global Commodity Stock fund (FFGCX) targets commodity companies. More than 40% of its portfolio is allocated to international equites, versus 35% for Fidelity Natural Resources.
The Goldman Sachs MLP Energy Infrastructure fund (GLPIX) and the Goldman Sachs Energy Infrastructure fund (GLEIX) share the same managers. Goldman Sachs MLP Energy has a higher concentration of master limit partnerships among its top 10 holdings, is larger and is more volatile (as is evidenced by its higher risk index). Neither are particularly tax efficient with three-year tax-cost ratios of 2.3% and 1.9%, respectively.
Technology Funds Among the Biggest Losers
The bad year for technology funds is noticeable in Table 2, which shows the 50 worst-performing no-load funds. The damage was spread across fund companies: T. Rowe Price Global Technology (PRGTX) fell by 55.5%, USAA Science & Technology (USSCX) lost 41.8%, TCW Artificial Intelligence Equity (TGJNX) gave back 40.4% and Invesco Technology Investor (FTCHX) short-circuited by 40.0%. Despite this bad year, all four still have positive five-year returns though just barely so for T. Rowe Price Global Technology. T. Rowe Price Global Technology also has the largest turnover ratio at 81%.
The biggest loser among mutual funds was Bitcoin Strategy ProFund Investor (BTCFX). It plunged 64.0% in 2022. Bitcoin Strategy ProFund invests in bitcoin futures contracts and not bitcoin itself. The fund was launched in July 2021—near cryptocurrency’s all-time high. Specialty funds are often launched during periods of heightened interest in a particular theme. Such funds do not tend to be profitable for buy-and-hold investors.
Vanguard Increases Share of Largest Funds
Table 3 highlights the 50 most widely held funds. These are the funds most likely to be in individual investors’ portfolios.
A continuing trend is Vanguard’s growing dominance. This year, 42 of the 50 most widely held funds are Vanguard funds. Last year, Vanguard had 36 funds on the list. In the 2021 guide, Vanguard had 34 funds on the list. Outflows from active funds have benefited Vanguard.
Fellow fund giants Fidelity and T. Rowe Price each had just three of their funds on the list. Fidelity Contrafund (FCNTX) was the largest non-Vanguard fund on the list, ranking 14th in terms of total assets.
T. Rowe Price Blue Chip Growth’s (TRBCX) $50.4 billion of assets were only good enough to rank it 38th.
The other two fund families represented on the list were Metropolitan West and Strategic Advisers. DoubleLine’s Total Return Bond Class N fund (DLTNX) didn’t make the cut in this year’s guide, as its assets fell to $32.4 billion in 2022 from $48.5 billion in 2021.
Funds appearing on this table have no loads. Leveraged or inverse funds are excluded. Institutional funds are also excluded, as are special share classes (e.g., adviser, retirement, etc.). For Vanguard funds with both admiral and investor class shares, only Vanguard admiral share classes are shown.
This Year’s Guide
This year’s mutual fund guide continues to make use of the data and tools available to members on AAII.com. They include our mutual fund grades and category averages.
The category averages provide a peer-based benchmark to compare a given fund against. They allow you to quickly see if a fund is more attractive or less attractive than all other funds in a particular category.
The grades range from A to F. The scale works just like it did when you were in school: A’s are good, while F’s are bad. Each of these grades is tied to a percentile rank based on how a specific fund compares to its category peers. A fund’s average annual return for a given period that ranks in the top quintile (best 20%) relative to that of its category peers will receive a grade of A. Lower grades are assigned for lower quintile rankings. So, a grade of C means that the fund’s average annual return for a certain period was about average relative to that of its category peers (the 41st to 60th percentile).
Members using the online version of this guide can access data on nearly 24,000 mutual funds on AAII.com. This large universe includes the no-load funds widely available to most individual investors as well as institutional and special share class funds. The latter may only be available through workplace retirement plans [e.g., 401(k) plans] and/or through brokers and financial advisers. Go to www.aaii.com/guides/mfguide to access the online version of the guide.
Our mutual fund data is updated monthly. Spreadsheets can be downloaded by clicking on the “Excel” button located on the right-hand side of the online mutual fund guide.
AAII members reading either the print or PDF version of this guide will see key mutual fund data presented on a single page. Approximately 360 mutual funds from a wide range of asset classes, fund groups and categories are covered in the print and PDF versions.
All AAII members have the ability to track the mutual funds they own in our My Portfolio tool on AAII.com. Clicking on a fund’s name or ticker (or typing either into the search box located at the top of most pages on our website) will call up our mutual fund evaluator. This page provides the valuable fund information and data that you are most interested in. It’s a very helpful tool for conducting mutual fund research.
Which Mutual Funds Were Included?
The mutual funds that appear in this guide were selected from the universe of open-end funds tracked through Nasdaq. The following are the various screens we used for the final selection of which funds to include in the print and the PDF versions of this guide.
The starting point for determining which categories to include is the fund groups matching the AAII Asset Allocation Models. The stock and bond mutual funds comprising these groups are also the most frequently found in individual investors’ portfolios. We then expanded the list of fund categories to cover those of interest to a large number of investors or that are commonly found in workplace retirement plans. This latter group includes sector funds, high-yield bond funds, allocation funds and target-date funds.
Only those mutual funds with three full years of data are included in Table 4. This requirement ensures that there is a performance record of significant length and that all performance measures can be calculated. This requirement was loosened for the listings of the best- and worst-performing funds (Tables 1 and 2) to provide a more direct comparison with our quarterly fund updates, which are published in the May, August and November issues of the AAII Journal.
Funds must appear in the Nasdaq mutual fund listings. Funds are generally required to have at least $1 billion in assets. A smaller size requirement is used for the top- and bottom-performing fund listings (Tables 1 and 2) to match the criteria used in our quarterly fund updates.
Only no-load mutual funds are included. Funds charging a load are excluded because of the large number of no-load funds available to individual investors and the drag on returns a front-end or back-end fee can have. Share classes more likely to have 12b-1 fees are also excluded.
Funds with significantly higher expense ratios than the average for their category are generally excluded.
For the most part, funds that significantly underperformed compared to the average performance of funds in their category are not included. Exceptions were made for funds of significant size.
Interest and Availability
Only those funds that are of general interest to mutual fund investors and available for investment by individual investors directly from the fund, without restrictions, are included in the print/PDF version of this guide. If a fund family offers multiple no-load classes of its funds, the investor or retail class is presented.
Go to AAII.com for Information on More Funds
Performance figures for mutual funds that do not appear in the print version of this guide can be accessed at www.aaii.com/guides/mfguide, where data on nearly 24,000 funds can be found. These include funds sold exclusively through advisers and those designated with special share classes, such as retirement.
Additional analysis can be conducted with our Compare Funds tool, found at the Investing Ideas page. You can use it to compare and contrast return, risk and turnover information for two or more funds. You can also track the funds you own or are most interested in with My Portfolio.
More Funds and Expanded Data Online at www.aaii.com/guides/mfguide
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