Harry Domash's Winning Investing

Six Mutual Funds for 2020

Assuming that the market continues last year’s penchant for growth, here are six mutual funds that, as a group, I expect to outperform in 2020.

Finding the Funds

To come up with the list, I started by listing the 600 or so U.S. equity funds that beat the S&P 500’s 29% return for 2019.

Consistent Market Beaters

Then, I honed the list down to the 321 funds that also met or beat the S&P’s average annual three and five year returns, which were 15% and 12%, respectively.

Fine Tuning

Next I ruled out funds that were closed to new investors, charged sales commissions (loads), or required more than $2,500 minimum initial purchases. Surprisingly, 148 funds passed all of my requirements. From that list I picked last year’s six top performing funds, except that I excluded funds with portfolios essentially duplicating already listed funds.

Before I get to the list, I need to define market capitalization, which is the value of a firm’s outstanding shares. Market-caps below $500 million are micro-caps, while values between $500 million and $2 billion define small-caps. Mid-caps have $2 billion to $10 billion market-caps, large-caps are $10 billion to $50 billion, and over $50 billion are mega-caps.

Final List

Fidelity Select Semiconductors (FSELX): Holds 57 semiconductor chip makers, mostly large- and mega-caps. Its biggest holdings are Intel (INTC) and Broadcom (AVGO). Fidelity returned 64% in 2019, and 25% and 23%, on average annually, over the past three and five years. Hardly a ‘buy and hold” player, Fidelity turns over 130% of its holdings annually.  

Needham Small Cap Growth (NESGX): Holds only 35 small- and mid-cap stocks that it views as emerging market leaders. Biggest holdings, Photronics (PLAB) and PDF Solutions (PDFS) comprise 20% of portfolio. Returned 54% in 2019, and averaged 18% and 16% over three and five years. Annual turnover is 103%.

Fidelity Select Technology (FSPTX): Holds all of the big tech players, but Apple (AAPL) and Microsoft (MSFT) account for 38% of portfolio. Returned 51% last year, and averaged 27% and 21% returns over the past three and five years. Annul portfolio turnover is 126%.

Baron Partners Retail (BPTRX): Holds a concentrated 28 stock portfolio comprised mostly of mid-cap stocks with strong growth potential. Some have been in the portfolio for 15 years or even longer (only 8% annual turnover). CoStar Group (CSGP) and Tesla (TSLA), comprise 37% of holdings. Returned 45% last year, and averaged 24%t and 16% annually over three and five years.

Tocqueville Opportunity (TOPPX): Holds a 194 stock portfolio comprised mostly of Internet-based businesses. Biggest holdings, Shopify (SHOP) and ServiceNow (NOW) account for 11% of portfolio. Returned 45% last year, and averaged 22% and 13% annually over three and five years. Annual turnover is 133%.

DF Dent Premier Growth (DFDPX): Holds 34 mostly large- and mega-cap stocks in a variety of sectors, but overweighting technology and financials. Biggest holdings, Visa and Ecolab comprise 12% of portfolio. Returned 43% in 2019, and averaged 24% and 16% annually over three and five years. Annual portfolio turnover is 23%.

As always, past performance doesn’t predict the future. These six funds could underperform in a weak market. All fund data courtesy of Morningstar (www.morningstar.com). 

1/20/20

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