The Best Stock Funds of 2023
The ‘Magnificent Seven’ tech stocks helped drive a rebound at many large-cap funds after a dismal 2022. The winner surged 65.2%.
The ‘Magnificent Seven’ tech stocks helped drive a rebound at many large-cap funds after a dismal 2022. The winner surged 65.2%.
Large-cap companies led the way in 2023, benefiting the money managers who believed in them.
Driven by a rebound in large and megacap stocks, in particular the “Magnificent Seven” technology companies, mutual-fund managers who saw double-digit losses in the market rout in 2022 found themselves rewarded for their patience this past year.
Nine of the top 10 stock funds in The Wall Street Journal’s Winners’ Circle survey of mutual funds, which covers the 12-month period ended Dec. 31, are in Morningstar’s large-cap growth category—often with big weightings in outperforming sectors such as technology, communications services and consumer discretionary. Those S&P 500 sectors notched total returns, including dividends, of 57.8%, 55.8% 42.4%, respectively, easily topping the broader market’s 26.3% result.
Still, the Magnificent Seven paced the market. These stocks—Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia and Tesla—all gained more than 48% last year.
Nvidia, whose chips have become synonymous with exploding interest in artificial intelligence, was the biggest winner among those stocks with a gain of 239%. It was followed by Facebook parent Meta at 194% and Tesla at 102%. These were popular holdings among the top-performing funds in the latest survey, though it varied by the individual manager.
Excluding those stocks, the S&P 500’s return was only 9.9%, according to S&P Dow Jones Indices. In other words, the Magnificent Seven accounted for more than half of the index’s 2023 performance and boosted the returns of many funds as well.
Still, there was plenty of good performance across mutual funds, and it wasn’t always contingent on those seven stocks. A rising tide lifts most boats.
For the latest 12-month period, more than 1,000 of the 1,191 funds tracked in the Journal’s survey made double-digit gains. The average fund returned 19.7%, and only four funds registered declines.
To qualify for inclusion in the Winners’ Circle, funds must be actively managed U.S.-stock funds with more than $50 million in assets and a record of three years or more, as well as meet a handful of other criteria. The survey excludes index and sector funds, funds that employ leverage strategies and most quantitative funds. The results are calculated by Morningstar Direct.
As always, this quarterly competition isn’t designed to create a “buy list” of funds for readers, but to demonstrate the ways that specific investment strategies benefited from recent market trends. Some of the funds that were highlighted a year ago have fallen in the rankings just as growth portfolios have grabbed the limelight—and that phenomenon isn’t uncommon.
Moreover, not all funds cited in these quarterly surveys may be available to investors, and they may have elements that make them unsuitable for some investors, ranging from their fee structure to their longer-term performance or volatility.
Take the latest No. 1 fund, for example. The $500 million Virtus Zevenbergen Innovative Growth Stock Fund (SAGAX) lost 55.4% in 2022 and 10.1% in 2021 as tech stocks tumbled amid the Federal Reserve’s rate-hike campaign and recession worry.
The fund returned 65.2% last year, however, thanks to the big turnaround for the large-cap growth stocks.
“Markets and management teams spent all of 2022 fearing and preparing for a recession that has so far failed to appear, but that excess pessimism really swung the pendulum too far in terms of market sentiment,” says Joe Dennison, a portfolio manager of the Virtus fund. “That has created some great opportunities for patient long-term investors.”
It holds five of the Magnificent Seven, three of which—Tesla, Nvidia and Amazon—are among its top 10 holdings. Tesla, its largest holding, stands at 7.7% of the fund.
These stocks aren’t new to Dennison and his co-managers. The fund first bought shares of Nvidia in 2017. Its holdings in Tesla and Amazon date to 2010 and 2008, respectively.
Dennison says the biggest contributors to the fund’s 2023 performance besides Tesla and Nvidia were MercadoLibre, an e-commerce company in Latin America, and Shopify, an e-commerce business platform. Those stocks gained 86% and 124% last year, respectively.
The Virtus fund doesn’t shy away from high valuations. As of Dec. 29, the trailing price-to-earnings ratio of stocks it holds was 70.4, excluding negative earnings. This approach, however, can be volatile.
Indeed, Dennison acknowledges “there will be volatility and periods of underperformance,” but he adds that it’s important to focus on longer-term performance and stick with companies that the managers believe in.
No. 2 in the latest survey, with a return of 59.1%, is the $290 million Value Line Larger Companies Focused Fund (VALLX), which holds all of the Magnificent Seven. They were initially put into the fund before 2023—though it did add to Amazon, Google parent Alphabet, Microsoft and Tesla in the first nine months of last year.
It trimmed its positions in Apple and Meta over that stretch.
The fund’s manager, Cindy Starke, says that 2023 was all about “adding to names that we had more conviction in,” rather than trying to unearth new stocks.
Starke looks for companies she thinks can increase sales at a three-year annualised compound rate of 10% or more and annualised earnings growth of at least 15% for three to five years.
She points out that the fund had broad stock appreciation last year: 25 of the holdings gained at least 50% over the year’s first three quarters. (That fund and others release quarterly holdings with a lag after the quarter ends, but performance is updated daily.)
Besides the Magnificent Seven, the fund’s winners included Uber Technologies, which appreciated 149% in 2023. It was put in the portfolio in the fourth quarter of 2021 and was the fund’s largest holding, at 6.5%, as of Sept. 30. Starke increased her holding in 2023.
When she added Uber to the fund in 2021, she recalls, “I just thought it was very undervalued” and that “the growth model would mature.”
Other top holdings include Nvidia, initially put into the fund in 2018; Microsoft (2020); Alphabet (2011) and Tesla (2021).
Two other big gainers for that fund: Advanced Micro Devices, which leapt 127% last year, and cybersecurity firm CrowdStrike Holdings, which rose 143%.
At the same time, Starke did plenty of selling. She trimmed the fund to 39 names from 47 over the first three quarters of 2023, jettisoning stocks such as Goldman Sachs, Walt Disney, Bank of America, Estée Lauder and Devon Energy. “I just got out of the names that didn’t offer me the same kind of growth opportunity,” she says.
Rounding out the top four funds are the $500 million Baron Fifth Avenue Growth Fund (BFTHX), which returned 57.2%, and the $11 billion Fidelity Blue Chip Growth K6 Fund (FBCGX), up 55.6%.
A party crasher at No. 5 is the Morgan Stanley Inception Portfolio (MSSGX)—the lone fund in the top 10 outside of the large-cap growth category.
It toils in small-cap issues, which lagged behind large-caps last year. The Russell 2000 index of small stocks returned 16.9% in 2023, trailing the S&P 500 by nearly 10 percentage points.
But the Inception portfolio punched well above its weight, notching a return of 54.4%.
The fund’s managers aren’t afraid to make outsize bets. As of Sept. 30, its information-technology weighting was 38%, compared with 21.4% for the Russell 2000 Growth Index—the fund’s benchmark.
One of its best holdings as of Sept. 30 was Affirm Holdings, which runs a buy now, pay later platform. The stock gained more than 400 % last year.
But that small-cap fund is an outlier in the Winners’ Circle. It is the only one outside of the large-cap growth category among the top 24 finishers in the survey.
At No. 6 is the $25 billion Harbor Capital Appreciation Fund (HACAX), returning 53.7%. As of Sept. 30, the Magnificent Seven accounted for six of its top 10 holdings.
The fund’s managers did make some hay in healthcare, an unloved S&P 500 sector that otherwise eked out a 2.1% return last year, including dividends.
One such healthcare winner it held is Eli Lilly. The pharmaceutical company’s stock returned 61%, helped by its strong position in a nascent class of drugs for weight loss.
“We’re trying to find companies that can generate above-average growth rates sustainably over an investment cycle,” says Blair Boyer, a co-manager of the fund.
Another healthcare company that fit the bill for the fund is Novo Nordisk. Its portfolio includes the Wegovy weight-loss drug. The stock was up more than 50% last year.
The fund unloaded its positions in Thermo Fisher Scientific, which sells testing equipment and measurement tools to laboratories, and life-sciences company Danaher. Thermo Fisher Scientific’s stock fell 4%, and Danaher dropped by 2%.
One of the fund’s biggest sector bets last year was consumer discretionary, representing 25% of the fund at the end of the third quarter, compared with a 16% representation in the Russell 1000 Growth Index.
Shares of vacation-rental company Airbnb, another of the fund’s holdings, surged by 59%.
Ultimately, while large-caps mutual funds enjoyed the Magnificent Seven-led rebound last year, it’s impossible to say how they will fare in 2024 given uncertainty about the economy and the path of the Fed’s monetary policy.
But despite fickle market sentiment, managers of top-performing funds say the key to their success is patience and staying true to their strategy even when things look bleak, as in 2022.
“It was about staying the course, having the conviction and adhering to our investment philosophy in good times and bad,” says Starke of the Value Line fund.
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Amazon, Google, Microsoft and Meta pour billions into artificial intelligence, undeterred by DeepSeek’s rise
Tech giants projected tens of billions of dollars in increased investment this year and sent a stark message about their plans for AI: We’re just getting started.
The four biggest spenders on the data centers that power artificial-intelligence systems all said in recent days that they would jack up investments further in 2025 after record outlays last year. Microsoft , Google and Meta Platforms have projected combined capital expenditures of at least $215 billion for their current fiscal years, an annual increase of more than 45%.
Amazon.com didn’t provide a full-year estimate but indicated on Thursday that total capex across its businesses is on course to grow to more than $100 billion, and said most of the increase will be for AI.
Their comments in recent quarterly earnings reports showed the AI arms race is still gaining momentum despite investor anxiety over the impact of China’s DeepSeek and whether these big U.S. companies will sufficiently profit from their unprecedented spending spree.
Investors have been especially shaken that DeepSeek replicated much of the capability of leading American AI systems despite spending less money and using fewer and less-powerful chips, according to its Chinese developer. Leaders of the U.S. companies were unbowed , touting advances in their own technology and arguing that lower costs will make AI more affordable and grow the demand for their cloud computing services, which AI needs to operate.
“We think virtually every application that we know of today is going to be reinvented with AI inside of it,” Amazon Chief Executive Andy Jassy said on Thursday’s earnings call.
Here is a breakdown of each company’s plans:
Amazon said a measure of its capex that includes leased equipment rose to a record of about $26 billion in the final quarter of 2024 , driven by spending in its cloud-computing division on equipment for data centers that host AI applications. Executives projected it would maintain the fourth-quarter spending volume in 2025, meaning an annual total of more than $100 billion by that measure.
The company—which gets most of its revenue from e-commerce and most of its profit from cloud computing—also projected overall sales for the current quarter that missed analysts’ expectations. Its shares slid about 4% in after-hours trading Thursday. The stock rose more than 40% in 2024 and was up nearly 9% this year before its earnings report.
Jassy said AI has the potential to propel historic change and that Amazon wants to be a leader of that progress.
“AI represents for sure the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the internet,” Jassy said.
Google shares are down about 7% since its earnings report Tuesday, which showed disappointing growth in its cloud-computing business. Still, parent-company Alphabet said it is accelerating investments in AI data centers as part of a surge in capital expenditures this year to about $75 billion, from $52.5 billion in 2024. The spending will go to infrastructure both for Google’s own use and for cloud-computing clients.
“I think part of the reason we are so excited about the AI opportunity is we know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down,” said CEO Sundar Pichai .
AI is “as big as it comes, and that’s why you’re seeing us invest to meet that moment,” he said.
Microsoft has said it plans to spend $80 billion on AI data centers in the fiscal year ending in June, and that spending would grow further next year , albeit at a slower pace.
Chief Executive Satya Nadella said AI will become much more extensively used , which he said is good news. “As AI becomes more efficient and accessible, we will see exponentially more demand,” Nadella said.
Growth for Microsoft’s cloud-computing business in the latest quarter also disappointed investors, leaving its stock down about 6% since its earnings report last week.
Meta, too, outlined a sizable increase in its investments driven by AI, including $60 billion to $65 billion in planned capital expenditures this year, roughly 70% higher than analysts had projected. Shares in Meta are up about 5% since its earnings report last week.
CEO Mark Zuckerberg said investing vast sums will enable it to adjust the technology as AI advances.
“That’s generally an advantage that we’re now going to be able to provide a higher quality of service than others who don’t necessarily have the business model to support it on a sustainable basis,” he said.
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