NEW YORK (Reuters) – Oversized betting on major US technology companies and emerging cryptocurrencies has fueled US mutual funds and exchange-traded funds this year as the coronavirus pandemic has boosted global markets, while funds betting on oil and gas companies fell nearly 100 percent, according to fundraiser Morningstar.
The year was a challenge like few others for the $ 21.3 trillion mutual industry and the $ 4.4 trillion ETF industry. U.S. equities fell in March before recording a return of more than 60%, while bond yields hit near record lows for much of the year following unprecedented moves by the Federal Reserve to support financial markets and keep interest rates low.
In general, those who played risky assets were rewarded. The best fund of the year, Grayscale Ethereum Trust, which owns ethereum, the second largest cryptocurrency in the world after bitcoin, rose 333.7% for the year to December 9, according to Morningstar.
The fund’s earnings came during a rally led by retail investors in cryptocurrencies, which pushed total assets invested in cryptocurrencies to a record $ 15 billion, up from $ 2.57 billion at the end of 2019, according to CoinShares digital asset manager.
Tech was another clear winner of the pandemic, as people moved from offices to work from home and did business by video call while ordering goods online. Bank of Montreal MicroSectors FANG + 3X Leveraged ETN and Bank of Montreal MicroSectors FANG + 2X Leveraged ETN – both use leverage to invest in so-called FANG technology stocks such as Facebook Inc and Netflix Inc – recorded returns of 301.9 % and 201.9% respectively, making it the second and third best performing fund for the year until December 9th.
Among actively managed funds that do not use leverage, the ARK Innovation ETF recorded the best overall returns with a gain of 143.8%, followed by a gain of 141.4% in the US fund Beacon ARK Transformational Innovation and a gain of 139.7% in the Morgan Stanley Discovery Fund institution.
Almost all of the top 10 equity funds in the US have concentrated portfolios that hold less than 50 shares and in some cases have more than 10% of their assets in the shares of a single company, according to Morningstar.
These high bets contributed to payments during a broad market rally that pushed several asset classes close to all-time highs and lifted the S&P 500 by more than 65% from its lows in mid-March. much of the US economy has stopped preventing the spread of coronavirus.
“When fund management ties in with fences, with big bets on a handful of growth names, they will take action, but it could turn upside down,” said Todd Rosenbluth, head of ETFs and mutual fund research at CFRA. .
Meanwhile, the worst-performing funds were those that took a long-term bet on oil and gas stocks, which fell this year due to a collapse in demand, which briefly turned the future of oil in April for the first time. in history.
The Direxion Daily S&P Oil & Gas E&P 2X ETF fell 97.3% for the year followed by the Direxion Daily Junior Gold Miners Bear 2X ETF, which fell 95.5% for that year.
Among the actively managed equity funds, the Highland Small Cap equity fund recorded the lowest return of the year, with a decrease of 51.1%.
Meanwhile, the best performing core bond was the American Funds Strategic Bond, with a gain of 17.7%. The fund has about 43% of its portfolio in the Treasury, double its benchmark, according to Morningstar. Its performance was about 18 percentage points ahead of the weakest performer in this category, the Putnam Mortgage Securities A fund, which has about half of its cash portfolio and less than 1% of its treasury assets.
Reporting by David Randall; Editing by Megan Davies and Andrea Ricci