I ran a Morningstar screen of the top performing U.S. focused Large-cap blend (combination of growth and value) funds to find out which ones are beating the market YTD. Out of the 467 large-cap blend funds in the Morningstar database, about 94 have bested the S&P 500’s 9.74% YTD return.
The top performing fund according to Morningstar is Upright Growth, up 20.1% YTD. How have Upright Growth and the other funds at the top of the heap beaten the market YTD? Among the Top 10 performing funds on the Morningstar list, the five largest holdings (across the ten) are Apple, Microsoft, Gilead, Wells Fargo, and Amazon. Not the most conservative group of names.
In other words, the top performing funds of 2014 have gotten there by taking on risk, and lots of it. The tiny Upright Growth Fund has a standard deviation (measure of volatility) of almost 18% compared to the 11.6% standard deviation of the S&P 500. The average standard deviation of the top five performing large-cap blend funds is 15%. And four of the five fall into Morningstar’s high risk category.
As was the case last year, so far in 2014, the top performing funds have been those taking the greatest amount of risk. High risk and high return may sound good on paper, but in practice the volatility of high risk strategies often leads to the kind of emotionally charged investment decisions that sabotage performance. Chasing performance is rarely a successful strategy, so don’t start now.
Jeremy Jones, CFA
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