Mutual funds experienced a rough year in 2015 when it came to both performance and fund flows. With the S&P having one of the worst yearly finishes since 2008, most mutual funds ended the year in the red, with short-selling funds reporting the biggest gains. The growing popularity of exchange-traded funds (ETFs) also led to negative fund flows of about $4 billion for domestic equity funds throughout the year, according to data compiled by Lipper.
While the majority of mutual funds have struggled, there were a number of mutual funds that posted double-digit gains for the year thanks to both sector and macro trends.
Science & Technology
The T. Rowe Price Global Technology Fund (PRGTX) was the top performer of 2015 with a 21.3% gain on the year. With an 11.21% weighting in Amazon.com Inc. (AMZN) and a 5.43% weighting in Tesla Motors Inc. (TSLA), the mutual fund benefited from the significant appreciation across both domestic and international technology stocks throughout 2015. Amazon.com alone saw its share price rise more than 118% throughout the year amid strong revenue growth.
The Turner Medical Science Long/Short Investor Shares Fund (TMSFX) was the third-best performer in 2015 with a 17.9% gain on the year. With health care being the top performing sector during the year, the fund managed to generate above-market performance with an actively managed portfolio that was strategically selected to focus on growth. Horizon Pharma plc (HZNP), which soared about 70% throughout 2015, was among its top holdings.
The health care sector will likely continue to outperform in 2016 as a safe haven investment class driven by an aging population. With lofty private market valuations, the technology industry is a bit less certain moving into 2016. The lackluster IPO of Square Inc. (SQ) led to some concerns that private market valuations may be too frothy for public market investors who are looking for tangible revenue and a pathway to profitability in many cases.
The Matthews Japan Fund (MJFOX) was the second-best performer in 2015 with a 20.8% return over the course of the year. While the Japanese yen held strong and deflation is rearing its head again, investors flocked the country due to the relatively cheap valuations available, record corporate profits, and the potential for the central bank to introduce further easing measures in 2016 in order to combat the threat of deflation.
The Wasatch International Growth Fund (WAIGX) was the fifth-strongest performer during 2015, generating gains of 15.2% on the year. With its focus on foreign small- and mid-cap growth companies, the fund holds a primarily technology-driven portfolio that also includes elements of consumer cyclical, health care, and industrial stocks. Many of these holdings outperformed during 2015 as the domestic portion of emerging markets saw improvements.
Looking into 2016, many countries are likely to continue seeing strong equity performance relative to the U.S. or other developed markets. The strong U.S. dollar could jeopardize emerging-market equities to a certain extent, but growing domestic demand may favor certain services-based companies. Japan and the euro zone could also see further improvements in equities if their central banks continue monetary easing policies in 2016.
The Bottom Line
Many mutual funds experienced a rough 2015 in terms of both performance and fund flows as equities around the world struggled and ETFs took market share. As always, certain areas of the market turned out to be strong performers and some countries posted strong gains as investors sought out returns outside of the U.S. Uncertainty remains in 2016, but some of these funds could continue to outperform the broader U.S. markets.