Last year’s winning mutual funds have borne the brunt of this year’s sell-off.
Aggressive growth mutual funds led the way in 2015, gaining 6.5%. Results were driven by the so-called FANGs (Facebook, Amazon, Netflix and Google). These high P/E stocks experienced strong gains as investors sought companies that could grow earnings in the face of an uneven economic backdrop.
This year, economic worries have sent stocks lower. Without valuation support, high P/E stocks are among the worst-performing areas of the market. Aggressive growth mutual funds are down more than 10%.
It’s a pattern that repeats often: yesterdays market winners become tomorrow’s losers, and vice versa. Indeed, many dividend-oriented mutual funds struggled in 2015, but are among the markets best performing areas this year.
Timeless takeaways for the thoughtful investor:
- The fear of “missing out” can lead to bad decisions, including chasing yesterday’s winners.
- Valuation ultimately matters, although it is not a reliable timing indicator.