Low-quality, beaten-down stocks played a role in driving many stock fund groups to the top percentile of performance in the most recent market rally, according to an analysis published by Morningstar Inc.
The Chicago-based firm reached its conclusion after examined the 50 biggest stock fund groups by and calculating their asset-weighted average percentile rankings for the period from March 10 to June 23.
Dodge & Cox Funds of San Francisco; the Davis Funds, offered by Davis Selected Advisers LP of Tucson; and Dimensional Fund Advisors LP of Austin, Texas, ecured the were the three best-performing stock funds at the ninth, 15th and 25th percentiles, respectively, during the period.
The rest of the top 10 were OppenheimerFunds Inc. of New York, Janus
Capital Group Inc. of Denver, Putnam Investments of Boston, T. Rowe Price Group Inc. of Baltimore, Royce & Associates LLC of New York, Artisan Partners LP of Milwaukee, and JennisonDryden, the fund family of Prudential Financial Inc. of Newark, N.J.
For the most part, the results were driven by the risk involved in the holdings in the funds, said David Kathman, a Morningstar fund analyst, in a study released late last week.
“It was the risky, low-quality stocks that did the best in the rally,” he said.
For example, the funds included holdings in financials, energy or commodities, Mr. Kathman said.
The outlook for those holdings depends on the direction of the rally, he said. “[Those funds have] already started to go sideways, and no one is sure if it’s a breather before it goes up again,” Mr. Kathman said.
“There are earnings coming out in the next few weeks that will have a big effect on the market,” he said.
“Also, any economic news will have an impact. A lot of the rally was based on investors’ expectations that things will get better.”
