Big tech bets and cryptocurrencies power 2020's top U.S. funds

Grayscale Ethereum Trust (ETH)

28/12/2020 06:00

By David Randall
    NEW YORK, Dec 28 (Reuters) - Outsized bets on large U.S.
technology companies and emerging cryptocurrencies fueled the
year's top-performing U.S. mutual fund and exchange-traded funds
as the coronavirus pandemic upended global markets, while funds
that bet on oil and gas companies fell 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. U.S. stocks
plunged in March before staging a more than 60% comeback, while
bond yields hung near record lows for much of the year after
unprecedented moves by the Federal Reserve to backstop the
financial markets and keep interest rates low. 
    Overall, those who played risk assets were rewarded. The
year's best fund, Grayscale Ethereum Trust  ETHE.PK , which
holds ethereum, the world's second-largest cryptocurrency after
bitcoin, soared 333.7% for the year through Dec. 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.
 urn:newsml:reuters.com:*:nL1N2IN23Z
    Tech was another clear winner from the pandemic as people
moved from offices to work-from-home and conducted business by
video call while ordering goods online. The Bank of Montreal
MicroSectors FANG+ 3X Leveraged ETN  FNGU.K  and the Bank of
Montreal MicroSectors FANG+ 2X Leveraged ETN  FNGO.K  - both of
which use leverage to invest in so-called FANG technology stocks
such as Facebook Inc  FB.O  and Netflix Inc  NFLX.O  - posted
returns of 301.9% and 201.9% respectively, making them the
second- and third-best performing funds for the year through
Dec. 9. 
    Among actively managed funds that do not use leverage, the
ARK Innovation ETF  ARKK.P  posted the best overall returns with
a gain of 143.8%, followed by a 141.4% gain in the American
Beacon ARK Transformational Innovation fund  ADNAX.O  and a
139.7% gain in the Morgan Stanley Institutional Discovery
 MACGX.O  fund. 
    Nearly all of the top 10 performing U.S. stock funds run
concentrated portfolios that hold less than 50 stocks and in
some cases have more than 10% of their assets in the shares of a
single company, according to Morningstar. 
    Those big bets helped pay off during a broad market rally
that has pushed several asset classes near all-time highs and
brought the S&P 500 up more than 65% since the lows it hit in
mid-March when much of the U.S. economy shut down to prevent the
spread of the coronavirus. 
    "When fund management swings for the fences with big bets on
a handful of growth names they will hit home runs, but they
might also strike out," said Todd Rosenbluth, head of ETF and 
mutual fund research at CFRA. 
    The worst-performing funds, meanwhile, were those that took
a long bet on oil and gas stocks which plummeted this year from
a collapse in demand which briefly turned oil futures negative
in April for the first time in history. 
    The Direxion Daily S&P Oil&Gas E&P 2X ETF  DRIP.P  fell
97.3% for the year, followed by the Direxion Daily Junior Gold
Miners Bear 2X ETF  JDST.P , which tumbled 95.5% for the year. 
    Among actively managed equity funds, the Highland Small Cap
Equity fund  HSZAX.O  posted the year's worst return with a
51.1% decline. 
    The year's top-performing intermediate core bond fund,
meanwhile, was the American Funds Strategic Bond fund  ANBAX.O 
with a 17.7% gain. The fund has roughly 43% of its portfolio in
Treasuries, double the weight if its benchmark index, according
to Morningstar. Its performance was roughly 18 percentage points
ahead of the year's worst performer in the category, the Putnam
Mortgage Securities A fund  PGSIX.O , which has roughly half of
its portfolio in cash and less than 1% of its assets in
Treasuries.
     

 (Reporting by David Randall; Editing by Megan Davies and Andrea
Ricci)
 ((David.Randall@thomsonreuters.com; 646-223-6607; Reuters
Messaging: david.randall.thomsonreuters.com@reuters.net))