NEW YORK (Reuters) – Extraordinary bets on major US tech companies and emerging cryptocurrencies have fueled the best-performing US mutual fund and exchange-traded funds of the year as the coronavirus pandemic rocked global markets while funds relying on oil and gas companies were down nearly 100%, according to data from fund tracker Morningstar.
The year was a challenge like few others for the $ 21.3 trillion mutual fund and $ 4.4 trillion ETF industry. US stocks plummeted in March before making a comeback above 60%, while bond yields remained near record lows for much of the year following unprecedented moves by the Federal Reserve to stunt financial markets and keep interest rates low.
In general, those who played risky assets were rewarded. The best fund of the year, Grayscale Ethereum Trust, which owns ethereum, the world’s second largest cryptocurrency after bitcoin, was up 333.7% for the year through December 9, according to Morningstar.
The fund’s gains came during a retail investor-led rally in cryptocurrencies that pushed total assets invested in crypto funds to a record $ 15 billion, up from $ 2.57 billion at the end of 2019, according to Digital Asset Manager CoinShares.
Tech was another clear winner of the pandemic as people moved from office to work-from-home and did business via video call while ordering goods online. The Bank of Montreal MicroSectors FANG + 3X Leveraged ETN and the Bank of Montreal MicroSectors FANG + 2X Leveraged ETN – both of which use leverage to invest in so-called FANG technology stocks such as Facebook Inc and Netflix Inc – returned 301.9% and 201.9%, making them the second and third best performing funds of the year up to and including 9 December.
Of the actively managed funds that do not use leverage, the ARK Innovation ETF posted the best overall return with a gain of 143.8%, followed by a gain of 141.4% in the US Beacon ARK Transformational Innovation Fund and a gain of 139.7% in the Morgan Stanley Institutional Discovery Fund.
According to Morningstar, nearly all of the top 10 best-performing US equity funds have concentrated portfolios of fewer than 50 stocks, and in some cases have more than 10% of their assets in shares of a single company.
Those big bets helped pay off during a broad market rally that pushed several asset classes to record highs and the S&P 500 is up more than 65% since the lows it hit in mid-March when much of the US economy shut down prevent the spread of the coronavirus.
“When fund management swings to the gates with big bets on a handful of growth names, they’ll hit home runs, but they can also break,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA.
The worst-performing funds, meanwhile, were those taking long bets on oil and gas stocks, plummeting this year from a collapse in demand that briefly turned oil futures negative in April for the first time in history.
The Direxion Daily S&P Oil & Gas E&P 2X ETF was down 97.3% for the year, followed by the Direxion Daily Junior Gold Miners Bear 2X ETF, which tumbled 95.5% this year.
Of the actively managed equity funds, the Highland Small Cap Equity fund posted the worst return of the year, down 51.1%.
The best performing bond fund from the intermediate core of the year was the American Funds Strategic Bond fund with a 17.7% gain. The fund has approximately 43% of its government bond portfolio, according to Morningstar, doubling the weight of its benchmark index. The performance was about 18 percentage points higher than the worst performance of the year in the category, the Putnam Mortgage Securities A fund, which has about half of its portfolio in cash and less than 1% of its assets in treasury bills.
Reporting by David Randall; Editing by Megan Davies and Andrea Ricci