The second quarter’s top-performing mutual funds delivered sizeable gains for their shareholders. Double-digit percentage returns were realized by domestic, sector and international stock funds. The gains were smaller for bond funds but still well into positive territory. Out of the broad universe of no-load mutual funds tracked, only a small number posted losses.

The overall good returns reflect both record highs for the major domestic stock indexes and a pullback in interest rates.

Energy Funds Gush Big Returns

Four of the top five sector funds for the quarter focus on the energy sector. Fidelity Select Natural Gas (FSNGX) was the top-performing sector fund, up 18.7%, followed by GS Energy Infrastructure Fund (GLEIX), up 16.8%, Fidelity Select Energy Service Portfolio (FSESX), up 15.5%, and Fidelity Natural Resources Fund (FNARX), up 14.5%. The increases in the energy sector are possibly a result of higher natural gas prices, up over 30% between April and June 2021.

Fidelity Select Natural Gas was not only the top-performing sector fund but also the top-performing fund overall for the quarter. This fund has 45 holdings, with the top 10 holdings representing 47% of the portfolio. At the end of the second quarter, the year-to-date return for the fund was 44.2%.

The worst-performing sector fund for the quarter was Kinetics Internet (WWWFX), which fell by 13.7%. More than 40% of its portfolio was allocated to the Grayscale Bitcoin Trust ETF (GBTC) as of the end of the first quarter of 2021. (Second-quarter data had yet to be released as of printing.) Concentrated positions can lead to more volatile returns.

Of the remaining bottom sector performers for the quarter, three focused on the utilities sector. Their losses were very modest, with declines of less than 1%.

Large-Cap Growth Leads Domestic Funds

Large-cap growth funds took the top five spots among domestic mutual funds for the quarter. Brown Advisory led the group with Brown Advisory Growth Equity Investor (BIAGX) jumping 14.1%, and Brown Advisory Sustainable Growth Investor (BIAWX) rising 13.3%. The big gains followed a disappointing first quarter. The two funds are only up 12.5% and 13.6% in 2021 so far, respectively, even after accounting for the second-quarter rebound.

The five top-performing domestic funds for the quarter all tilt toward the technology sector, with more than 25% of their portfolios allocated to the sector. Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT) and Alphabet Inc. (GOOGL) are among the top holdings for each fund.

The weakest domestic mutual funds in the second quarter can be found in the small-cap category. Four of the five bottom-performing funds target small-cap stocks. The worst return for the quarter was realized by Touchstone Small Cap Y (TSFYX), though it was only down 0.3%. The other bottom funds posted small positive returns for the second quarter.

Small Cap Stands Tall Within International Funds

Grandeur Peak International Stalwarts Investor (GISOX) led the way for the international funds, up 15.5% for the quarter. This is a global small-cap fund. Foreign stocks account for 55% of its portfolio, while the other 45% is invested in domestic holdings. Notably, Grandeur Peak International Stalwarts is only up 16.5% year to date due to a lackluster first quarter.

Fidelity Latin America (FLATX) was the runner-up of the international funds, with a 15.1% gain for the quarter. This fund directly invests at least 80% of its assets in securities of Latin American companies and other investments that are tied to Latin America. Brazilian companies account for nearly two-thirds of the fund’s portfolio.

The title of worst second-quarter return by an international fund went to T. Rowe Price Japan (PRJPX). The fund declined 2.3%. This fund currently has 63 holdings, with the top 10 holdings making up 37% of the total assets held. The top three sector allocations for this fund are 32% industrials, 18.2% technology and 13.4% health care. The fund is focused on large-cap growth companies exclusively in Japan. The fund has historically led its category peers, ranking in the top 20% on both a three- and five-year annualized return basis.

Overall, the second-quarter losses among international funds were limited. Just three other funds in this quarterly update’s universe turned in small negative returns: Selected International D (SLSDX), Fidelity China Region (FHKCX) and Matthews Japan Investor (MJFOX).

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