The overriding characteristic for the year was growth styles outperforming value styles. And they did so in a historic fashion. Regardless of Market Capitalization, Large Cap, Mid Cap and Small Cap growth funds have handily outperformed value funds, accounting for the largest difference in return between value and growth for any year on record.
Overall, the Mutual Fund Model equity assets returned 14.88%, Mutual Fund Model fixed income assets returned 9.01%, and Core Plus Model equity assets returned 16.16%.
Large Cap. Large Cap funds overall were up 19.18% compared to S&P 500 at 18.40%. Our Technology sector fund, the Vanguard Information Technology Index Fund (VITAX), contributed to the strong showing as the technology sector of the S&P 500 had the strongest growth compared to other sectors in 2020. Both our T. Rowe Price Dividend Growth (PDGIX) and J.P. Morgan Hedged Equity Funds (JHEQX) were slightly less favorable during the year but provided good risk metrics to complement our team’s overall strategy within this space.
Mid Cap. Mid Cap funds helped the overall strong performance for the year. The two Mid Cap funds were up 18.11% compared to the Mid Cap 400 index at 13.66%. Our Mid Cap growth fund, MFS Mid Cap Growth Fund (OTCKX) saw overwhelming returns based almost entirely on stock selection as the fund manager likes to stay close to sector weights. Our J.P. Morgan Value Fund (FLMVX) lagged the OTCKX, which was to be expected as those types of stocks were less favored in this high growth space as valuation of companies did not affect market bias in 2020.
Small Cap. The Small Cap funds also benefited from our team’s good fund selection. Together, our two funds outperformed the S&P 600 Index. Our Small Cap funds were up 23.27% compared to 11.29% for the S&P 600 Index. One of our funds, Aberdeen U.S. Small Cap Equity Fund (GSCIX), exceeded expectations.
Core Plus Model. The Individual Northern Trust SMA stock performance in our Core Plus portfolio outperformed the S&P 500 for the year by 3.51%. Our team’s stock selection across the portfolio contributed to the portfolio’s strong performance as sector weights stayed close to the benchmark. Notably, companies such as Deere, Xilinx, Nvidia, Microsoft, Apple, Alexion Pharmaceuticals, Estee Lauder, Nike, McDonald’s, Amazon, Facebook, Disney, Google, and Chipotle were all solid contributors to our Core Plus portfolio.
Developed International Space. The Developed International Space was up 10.06% compared to 7.82% for the EAFE. Our largest fund in this space, the Fidelity Overseas Fund (FOSFX), which tends to buy companies whose three-to-five-year intrinsic value looks cheap compared to the market, had a strong performance and was the larger contributor to returns compared to our FMI Value Fund (FMIYX). Although similar in terms of value fund in Mid Cap, the FMI Value Fund suffered from their value names and sectors being out of favor in 2020 compared to the Fidelity Overseas Fund.
Emerging Market fund. Our Emerging Market fund, Invesco Developing Markets Fund (ODVYX), was up 17.5% compared to 18.31% for the MSCI EMR Index. Our Emerging Market manager, Invesco Developing Markets Fund (ODVYX) tends to buy quality companies that have less upside in a strong market and better downside capture in a weak market. For that reason, the fund started lagging in performance when higher beta names dominated the second half of 2020.
Fixed income fund. The fixed income fund mix returned 9.01% compared to 7.51% return for the Bloomberg Barclays U.S. Aggregate Bond Index. Except for the short-term bond fund which we use for duration risk management, returns in all the funds outperformed the index. Our team found multiple good investment opportunities in mispriced markets in the corporate, mortgage, municipal and government sectors as well as non-benchmark sectors like high-yield and asset-backed, during the fixed income crisis in March and early April of 2020. Contributing to the strong performance are the Baird Core Plus Bond Fund (BCOIX), TCW Total Return Bond Fund (TGLMX) and the Guggenheim Total Return Bond Fund (GIBIX). This is because the BCOIX has strong corporate bond picking prowess and the TGLMX has similar expertise in the mortgage-backed space, along with GIBIX going into the non-index sectors with great acumen.
Do note that the information provided is general in nature and based on our understanding of available information as of January 15, 2021. Please consult your financial advisor to discuss how the information presented here may impact your investments.