By Haddon Libby
2017 was one of the best years for investors since the Great Recession of a decade ago. At the time of the Great Recession, 62% of Americans had investments in the stock markets. Today, only 54% have stock investments although this number rises to 89% for those earning more than $100,000 a year. Those invested in the U.S. stock market saw returns of 21.5% for the year. While impressive, U.S. stock returns for the year were half those of Chinese stocks which were up 42.5%. Topping China was India with an increase of 47.5%.
Most people invest using mutual funds via their 401(k) plans and often use Exchange-Traded Funds (ETFs) for their personal investment accounts. ETFs are typically less expensive and can be sold at any point in the trading day while Mutual Funds settle after the close of the trading day and typically cost more.
If you invested $1,000 in the top performing ETF in 2017 you would now have $15,570! That is not a typo – your money would have gone up 1,557%! The high-flying ETF responsible for the extraordinary returns was the Bitcoin Investment Trust (GBTC). At the other end of the return spectrum was UNG, the United States Natural Gas ETF, down 38%.
Looking across the Mutual Fund universe, Neuberger Berman’s Greater China fund (NCEIX) had a 66% return and was the best performer with results that more than justified their 1.5% cost. Like their ETF counterparts, the Fidelity Natural Gas fund (FSNGX) was the weakest performer, off 15.6% at a cost of 0.87% – such a deal!
A style-based way to think of investments is to categorize them as growth-oriented, value-oriented or a blend of both. From there monies are split between large, medium and small-sized companies located domestically and abroad. According to Morningstar, large cap growth-focused funds posted the best average returns at 31%!
The best performing large cap growth fund was Quantified STF Investor (QSTFX) posting a whopping 69% return for 2017. This fund debuted in 2016 when it was the worst performing fund in this style losing 14%. Amongst the better-known companies, Morgan Stanley’s Multi-Cap Growth fund (MCRTX) had a 48% return for the year which was 35% better than Legg Mason’s Clearbridge large cap growth fund which posted the weakest results in this style at 13%. Amongst large cap growth ETFs, the best performer was iShares Momentum Factor ETF (MTUM) posting a 37.6% return at a thrifty price of 0.15% per annum. The weakest style was small value-oriented companies, up a modest 8.6%.
Countries like China, India and Russia are considered ‘emerging markets’. Emerging market bond funds recovered from years of poor performance to earn a 13.6% return – the best in the fixed income space. Long-term bond funds also surprised most by posting returns of 9.6% on average. Despite the strong performance, investors were fleeing long-dated bond and high yield funds at year-end as risks associated with rising interest rates more than offset lofty returns.
When we look at the various business sectors, technology companies once again set the bar with a 35% return. Healthcare had the second-best sector results at 24.4% followed closely by Industrial stocks which were up 23.3%. Industrials benefitted greatly by the inclusion of Boeing which Morningstar states was the best performing Dow stock in 2017 with an 82% return for the year. The clear laggard for the year was General Electric, down 40% in 2017. Limited Partnerships in the Energy field were the weakest sector, down 6.1% on the year. Natural Gas continued to suffer with many funds that focused on this commodity down more than 20% for the year.
Looking forward to 2018, most market watchers are optimistic that the global recovery will continue with vigor albeit at a far more tempered rate.
Haddon Libby is Managing Director and Founder of Winslow Drake Investment Management and can be reached at 760.449.6349 or Hlibby@WinslowDrake.com. For more information, please visit www.WinslowDrake.com. Disclaimer: Any stocks, mutual funds or ETFs mentioned in this article do not constitute a recommendation of any kind.
