Best Mutual Funds That Keep Topping The Market (2024)

Mutual funds remain one of the best ways to build wealth and achieve financial goals, and if you're looking for funds to buy, Investor's Business Daily's Best Mutual Funds 2022 Awards report is here to help.

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The stock funds that won IBD's Best Mutual Funds Awards this year stand out for clearing an especially high hurdle: an S&P 500 benchmark that generated outsized returns for every time frame measured.

A lot fewer stock-picking fund managers made the Best Mutual Funds list vs. last year. But the funds that topped the benchmark's above-average performance deserve extra attention from investors looking to buy mutual funds.

Why was it tougher for diversified stock funds to outperform? "Equity leadership was concentrated in megacap growth stocks, which mathematically makes it harder to outperform," said Jurrien Timmer, global head of macro for Fidelity Investments. "An investor would need to have even bigger concentrations in already very big names." Many megacap outperformers were tech stocks.

And why was it harder for actively managed funds in general to outperform? Timmer says those funds' managers were like fishermen in a pond whose fish supply has been depleted. Landing fish in such a pond is harder, Timmer says.

Fidelity placed more winners on IBD's Best Mutual Funds 2022 Awards than any other fund family.

The seventh annual IBD Best Mutual Funds Awards followed the same selection method as prior years. First, we looked at funds in the Morningstar mutual fund universe that were at least 10 years old. We then determined which funds topped their benchmark index in four time periods: the latest year and the three, five and 10 years ended Dec. 31.

• View Full Special Report: Best Mutual Fund Awards
• Go To Our List Of All Award-Winning Funds By Category

Measuring over four periods discards the one-time wonders. It rewards funds that excelled in recent conditions as well as over the long haul.

Out of a potential pool of some 8,000 funds, just 3,672 are at least 10 years old. Only 677 funds, or 18% of funds at least 10 years old, won awards. With some funds winning more than one, there were a total of 739 awards.

How To Use Best Mutual Funds 2022 Awards

The Best Mutual Funds 2022 tables make an excellent place for investors to look for a fund to add to their portfolio. And if you already own funds, check to see if yours made the cut. If not, you might consider adding one or swapping one out.

While our overview list highlights the top five funds in each category — or in the case of sector funds, at least the top fund in each of the three sectors with winners— all of the Best Mutual Funds show superior performance and are worth considering. You might find a fund in your portfolio or available in your 401(k) plan that's on one of the full category lists, which you can access from the overview table at Investors.com/BestMutualFundsList.

Whether you're looking for one mutual fund to carry most of the weight of your investing or a few to build or round out a diversified portfolio, start by looking at award winners in the 11 categories and subcategories, such as growth stock funds and U.S. taxable bond funds.Check to see if their investment strategy and holdings fit with your objectives and tolerance for risk as an investor.

Don't be discouraged if a fund you own isn't a 2022 award winner. Rather, weigh its performance and suitability in your portfolio against what's available from funds on the 2022 list.

The same goes if you chose an award winner from a past year that didn't make this year's list.

And don't make the mistake of thinking that a large number of awards in a category means you should pick more funds from that category.

Bond funds had a relatively easy path to an award. Various categories of fixed income funds doubled and even tripled their rates of success vs. the year before.

Bond managers who achieved that likely added high-performing bonds that were not in their benchmarks, Timmer says. The Bloomberg U.S. Aggregate Bond Index, IBD's bogey for U.S. taxable bonds, excludes high-yield bonds, Timmer says. Since many high-yield bonds outperformed, all managers had to do was add such bonds to lift their funds' performances.

But that doesn't mean you should load up on award-winning bond funds beyond what's appropriate for your investment plan. Rather, this year's plethora of fixed income winners give plenty of choices to investors seeking the relatively low volatility of bond funds and their prospects for income in the current market environment of rising rates and stock market volatility.

In fact, overallthe IBD Best Mutual Funds 2022 Awards offer you a wide variety of ideas for building a portfolio. That's true whether you're looking for broadly diversified core funds or narrowly focused specialty funds that can fill a niche need in a single sector or for stocks based outside the U.S.

Our list highlights winning U.S. diversified stock funds by market-cap focus as well as the best growth stock mutual funds. If you want a broader mix of investment styles, our list identifies winning blend stock funds.

We also list sector funds, international stock funds, index funds and the best bond funds. Bonds are broken down into U.S. taxable, muni bonds and international bond funds.

Value funds and midcap funds failed to place any winners.

Winning Funds, By The Numbers

Of the 677 winners overall, bond funds accounted for 462. Only 215 winners were stock funds.

Since some funds won more than one award, those 677 funds earned 739 awards. A top diversified stock fund, for example, might also rank among the best large-cap funds.

Here's the breakdown: U.S. taxable bond funds grabbed top bragging rights, as 335 of them snagged awards. International bond funds were second with 173 winners.

Trailing those and several additional bond fund categories, large-cap stock funds accounted for 27 award winners.

Last year, it was roughly the opposite. Stock funds dominated. Bond funds lagged.

Best Mutual Funds 2022: Winners In A Wild Market

Market volatility was the main reason for the weaker showing of stock funds.

The stock market rotated toward value stocks in the first quarter, then back toward growth, then back into value in the fourth quarter.

One culprit was the rising specter of inflation. "Inflation was rising to multidecade highs," said Dan Mahr, lead manager of two Federated Hermes MDT funds that won awards for two funds, Large Cap Growth (QILGX) and All Cap Core IS (QIACX).

"So the market began anticipating interest-rate hikes," he said. "And those are generally viewed as bad for stocks, especially for growth stocks. Their prospective cash flows tend to be further into the future. So a higher discount rate has a greater impact on them."

Both of Mahr's funds were winners in the U.S. Diversified Stock Funds, Growth and Large Cap categories.All Cap Core also won in Blend.

The second key villain was the prospect of interest rate increases by the Federal Reserve. "The leadership change started when the Fed became more assertive in setting expectations for accelerated rate hikes," said Fidelity's Timmer. "Then, in December, the Fed moved the goal posts. It said rate hikes would be faster, higher, sooner. That brought value stocks back to life."

Why Gains For Stock Funds Were Hard To Land

The notched a 28.71% return in 2021. That's more than double the index's long-term average annual total return of about 10% from 1926 through this past Feb. 28, according to Morningstar Direct. The gain marked a continuation of the rally fueled by the Fed's easy money policy meant to help the economy recover from the Covid pandemic crash in early 2020.

The S&P 500's 2021 gain set an especially high bar to top for stock-picking fund managers. A mere 22% of actively managed stock funds — diversified funds plus sector funds — that invest mainly in U.S. stocks outran the bogey in calendar 2021, according to Morningstar Direct.

To win an award, stock funds competing against the S&P 500 had to top the index's big 2021 jump as well as its average annual gains of 26.07% over the three years ended Dec. 31, 18.47% over the past five years and 16.55% over the trailing 10 years.

Among U.S. diversified stock mutual funds alone, a scant 2% were 2022 Best Mutual Funds Awards winners. That was merely 31 of 1,287 funds with at least 10-year records.

The prior year, 25% of 1,285 eligible funds copped winner garlands.

The makeup of the S&P 500 benchmark was another obstacle facing stock pickers. That brawn was concentrated among large-cap tech stocks.

Just 4% of large-cap stock funds — whose holdings tend to include stocks well beyond the realm of a relatively elite corps of technology stocks — are IBD Best Mutual Funds Awards winners this time around. Only 27 out of 697 eligible funds outperformed in every time frame.

The going was even worse for smaller stocks. Investors' obsession with a handful of huge tech stocks left midcap and small-cap stocks and funds largely out in the cold.

A measly four out of 335 eligible small-cap funds fought their way to this year's winners' podium.The year before, a far more robust 21% of eligible small-cap funds won winners' honors.

And the number of midcap fund winners this year was a big fat zero. A healthy 26% won in the prior year. Still, some of the best midcap funds moved up to the large-cap category as strong holdings climbed in price and market capitalization.

Benchmarks For Best Mutual Funds 2022

The S&P 500 is the benchmark for most of the fund groups. That's the case for U.S. Diversified Stock Funds, Growth Funds, Blend Funds (which invest in both growth-oriented and value-oriented stocks), Value Funds, Large-Cap Funds, Midcap Funds, Small-Cap Funds, Sector Funds and Index Funds.

International Stock Funds' benchmark is the MSCI EAFE Index. The EAFE is focused on developed markets.

The bogey for U.S. Taxable Bond Funds is the Bloomberg Barclays U.S. Aggregate Bond Index. Municipal Bond Funds are measured against the Bloomberg Barclays Municipal Bond Index. And International Bond Funds had to beat the Bloomberg Barclays Global Aggregate Index to become IBD Best Mutual Funds Award winners.

Winners Explain Winning Ways

How do some of this year's winners explain their outperformance?

Michael Baron, a manager of Baron Partners Retail Fund (BPTRX), summarizes the strategy that made his fund the king of the hill in three categories: U.S. Diversified Stock Funds, Growth Stock Funds and Large-Cap Funds.

The fund also was the repeat winner in the first and second groups. It moved up to Large-Cap from Midcap, where it was last year's No. 1.

Baron divides the fund into four categories: disruptive growth, financials, real/irreplaceable assets and core growth. "Disruptive growth is our major category," Baron told IBD. "And companies that were able to show growth in difficult environments, like Tesla (TSLA), were rewarded last year."

Baron Partners racked up a torrid 67.92% average annual return in the three years ended Dec. 31.

That was the best three-year pace by any award winner.

The fund's 10-year average annual return was 27.89%. The second best U.S. diversified stock fund was more than eight percentage points behind.

Baron Partners delivered a red-hot 148.52% total return in 2020 alone. And in 2021, a backbreaker for many otherwise stellar funds, Baron Partners rose 31.39%, nudging past the benchmark by 2.78 percentage points.

For Jean Park, lead manager of Fidelity Fund (FFIDX), condensing a complex investment process into a simpler approach is what helped put her fund among the winners of IBD's Best Mutual Funds 2022 Awards.

Value Funds' Performance

This year was the fifth year in a row that Value Funds were shut out. Why has it been so hard for them to reach the winners' circle?

Value's 2021 tailwind came from energy stocks. The economy's reopening boosted them. It also came from financial stocks. Inflation expectations lifted the outlook for interest rate hikes.

But "value's outperformance at the end of 2021 wasn't enough to overcome growth's outperformance in the first three quarters of 2021," said Billy Hwan, manager of Parnassus Endeavor Investor Fund (PARWX). His value fund fell just a few basis points shy in its five-year average annual return of winning Best Mutual Funds 2022 Awards recognition.

And growth funds got a boost from megacap tech stocks. In particular, FAANG stocks like Facebook (FB), now calling itself Meta Platforms, Apple (AAPL), Amazon.com (AMZN), Netflix (NFLX) and Google-parent Alphabet (GOOGL) could do no wrong in many investors' eyes.

Funds Winning In Multiple Categories

Baron Partners Retail and Federated HermesMDT Large Cap Growth All Cap Core are not the only funds that won Best Mutual Funds Awards in more than one category.

Among others, Oberweis Micro-Cap (OBMCX) was a top-five winner in U.S. Diversified Stock Funds, Growth Funds and Small-Cap Funds.

Goldman Sachs Large Cap Growth Insights Institutional (GCGIX) made a triple play in U.S. Diversified Stock Funds, Growth Funds and Large-Cap Funds.

Columbia Large Cap Growth V (GAEGX) turned the same triple play in the same categories.

Best Mutual Funds By Type

Below are some of the 2022 Best Mutual Funds by categories. Click on the category name to see the full list of funds.

• U.S. Diversified Stock Funds: Baron Partners Retail (BPTRX).
• Growth Stock Funds: Glenmede Quant U.S. Large Cap Growth Equity (GTLLX).
• Blend Funds: JHanco*ck Fundamental All Cap Core I (JFCIX).
• Large-Cap Funds: Federated Hermes MDT Large Cap Growth IS (QILGX).
• Small-Cap Funds: Needham Aggressive Growth Retail (NEAGX).
• Sector Funds: Fidelity Select Semiconductors (FSELX).
• International Stock Funds: Wasatch Emerging India Investor (WAINX).
• U.S. Taxable Bond Funds: Virtus AllianzGI Convertible Institutional (ANNPX).
• Municipal Bond Funds: Nuveen High Yield Municipal Bond I (NHMRX).
• International Bond Funds: GMO Emerging Country Debt III (GMCDX).
• Index Funds: Voya Russell Large Cap Growth Index Port I (IRLNX).

Fund Families' Best Mutual Funds Awards Winners

Funds from more than 150 fund families earned spots in the IBD 2022 Best Mutual Funds Awards. Some fund families run far more winners than others.

Fidelity Investments leads the leaders parade, as it did last year. The Boston-based fund complex picked up 40 of IBD's 2022 Best Mutual Funds Awards, including multiple wins by some funds.

That's 64% more than the second most prolific fund complexes. Delaware Funds by Macquarie and PIMCO both run funds that won 25 awards.

Close behind is Columbia Threadneedle, whose funds copped 23 awards.

Invesco won 21 awards, followed by Franklin Templeton Investments with 20. Federated brought home 18 and Victory Capital landed 17.

AllianceBernstein and Eaton Vance rounded out the top 10 with 16 award-winners each.

Best Mutual Funds' Strategies

What enabled winners to win?

Some winning strategies are transparent. Index Funds winners focus on big technology stocks. Voya Russell Large Cap Growth Index Portfolio I Fund (IRLNX) had a whopping 44% weighting in technology stocks as of Jan. 31. Its top 10 holdings included Microsoft (MSFT) and Tesla. Its top 10 also included FAANG stocks Facebook's Meta Platforms, Apple, Amazon.com and Google-parent Alphabet.

All six are in the S&P 500.

Tech and FAANGs were also well-represented among U.S. Diversified, Growth, Large Cap and Sector winners.

The best U.S. Taxable Bond Funds? All five top funds focus on convertible securities, whose prices tend to act more like stocks than bonds, rising in bull markets.

Follow Paul Katzeff onTwitter at @IBD_PKatzefffor tips about retirement planning and actively run portfolios that consistently outperform and rank among the best mutual funds.

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