The Market Is Suffering from Bad Breadth. These Funds Are Still Winning.

While bad breadth is seen as a negative for stockpickers because it decreases the probability of selecting a winner, large-cap active funds still posted solid performance in May, with 54% of funds beating their
Russell 1000
benchmark, BofA said in a report. 

Sonu Kalra, portfolio manager of the $43.6 billion
Fidelity Blue Chip Growth
fund (ticker: FBGRX), is paying close attention to market breadth.

“Many of the companies that are performing well this year are the same companies that did poorly last year,” he said via email. “In my mind, the market had assumed that these companies would continue to deliver poor results and hadn’t considered the operational changes they were embarking on.”

Kalra said there are signs that market breadth is starting to broaden, which is positive.

Here’s a look at some of the U.S. large-cap active funds that have delivered impressive performance this year.

At the top of the leader board is the $79 million
Zevenbergen Genea
fund (ticker: ZVGNX), with a total return of 48.43% for the year through June 6, according to Morningstar Direct. The fund ranks in the first percentile this year, besting 99% of its category peers.

Anthony Zackery, co-manager of the portfolio, says chip maker
Nvidia
(NVDA), electric-vehicle maker
Tesla
(TSLA), advertising technology company Trade Desk (TTD), and e-commerce software company
Shopify
(SHOP), are among the stocks that have boosted returns. 

Nvidia, which the fund has owned since July 2016, has benefited from this year’s investor frenzy over stocks linked to artificial intelligence. The semiconductor company closed with a market capitalization above $1 trillion on Tuesday.

The firm’s $107 million
Zevenbergen Growth
fund (ZVNBX) is also up strongly this year, with total returns of 45.21% over the same period. About 65% of the portfolio’s holdings overlap with the Genea Fund, but a key difference lies in the sector exposures: The Genea fund is more concentrated in the consumer discretionary and technology sectors, while the Growth fund also holds healthcare and energy companies. 

One stock that has boosted performance is cancer-screening and diagnostics company
Exact Sciences
(EXAS), which is up nearly 90% this year. One of its products is Cologuard, an at-home colon cancer test.

“The U.S. only has the capacity to do six million colonoscopies a year, and there are 60 million people domestically who are behind on their colon cancer screening,” said Joe Dennison, a co-manager for both funds. “Cologuard offers a very compelling alternative to colonoscopy.”

The Fidelity Blue Chip Growth fund is also in the winner’s circle, with total returns of 33.13% through June 6. Kalra says a rebound in technology and communication services stocks helped performance this year.

“After a challenging 2022, many of these companies have taken steps to right size their cost structure to match the current slower growth environment,” he said. “As difficult as these decisions were, they have led to improving profitability and higher stock prices.”

Nvidia, a top-five holding, has been the fund’s top contributor this year.

Another fund up sharply this year is the $1.04 billion
Baron Opportunity
fund (BIOPX), with total returns of 32.85% through June 6.

Portfolio manager Mike Lippert says that boosting the fund’s exposure to semiconductor companies in the fall of 2022 and first quarter of this year helped drive gains. Aside from Nvidia, the fund owns shares of Advanced Micro Devices (AMD), up more than 90% this year, and
Indie Semiconductor
(INDI), up nearly 80%. It also holds technology giants
Microsoft
(MSFT) and
Amazon.com
(AMZN).

Write to Lauren Foster at [email protected]