How Growth Stocks Powered Equity Funds to Record Gains in 2024

The year 2024 was a banner year for equity mutual funds, marked by stellar gains despite a volatile fourth quarter. The Morningstar US Market Index climbed 24.1%, bolstered by the dominance of large-growth stocks and technology giants. While growth funds thrived, small-cap value funds and non-US markets faced challenges, highlighting a year of stark contrasts in investment performance.

Large-Growth Funds Dominate Again

Large-growth funds stole the spotlight in 2024, delivering an average gain of 29.0%, outperforming all other Morningstar Style Box categories. These funds benefited heavily from the continued dominance of the so-called “Magnificent Seven” stocks: Nvidia, Amazon, Microsoft, Apple, Meta Platforms, Tesla, and Google’s parent company, Alphabet.

Funds like Alger Spectra (SPECX) and Alger Capital Appreciation (ACAAX) were top performers, each gaining nearly 50%. Their heavy allocations to Nvidia, which surged 171%, and AppLovin, which skyrocketed 713%, were key drivers of success. Other strong holdings, including Eli Lilly and Amazon, added further gains.

Meanwhile, funds that avoided or underweighted these high-flyers struggled. For instance, Calvert Equity (CSIEX) and MFS Intrinsic Value (UIVRX) lagged their peers significantly, underscoring the importance of owning top-performing growth stocks in a year defined by tech dominance.

Challenges for Active Mid-Growth Managers

The Russell Midcap Growth Index presented a high bar for active managers in 2024. Only 26 of the 123 actively managed mid-growth funds outperformed the index, reflecting the challenge of navigating a speculative growth environment.

Funds like Morgan Stanley Institutional Growth (MSEQX) excelled, gaining 46.6% and beating 97% of its peers. The fund’s holdings in speculative growth names like MicroStrategy (MSTR), which rose 359%, and Coinbase (COIN), which gained 43%, played a pivotal role in its outperformance. Tesla, with a 63% gain, also added to the fund’s stellar returns.

Small-Value Funds Lag Behind

Small-value funds were the weakest performers in 2024, gaining just 8.9% for the year. The category suffered from poor showings by deeper-value holdings such as Jeld-Wen, TrueBlue, and Hooker Furnishings, all of which fell over 40%.

Towle Value (TDVFX) had a particularly rough year, declining 9.0% and trailing all its small-value peers. Longtime holdings like Par Pacific Holdings (PARR) and Cleveland-Cliffs (CLF) were among the biggest detractors, with both stocks plummeting more than 50%.

International and Emerging Markets: Mixed Results

International markets had a turbulent 2024. The Morningstar Developed Markets ex-USA Index gained 4.4%, while the Emerging Markets Index rose 7.1%. China emerged as a surprising leader, with its index rising 16.5% for the year, while Brazil lagged significantly, posting a 28.4% decline.

US exposure proved advantageous for certain international funds. John Hancock International Dynamic Growth (JIJRX) gained 25.1%, topping 98% of its foreign large-growth peers. The fund’s holdings in US tech leaders like Nvidia and Meta Platforms were instrumental in its outperformance.

Emerging markets also produced standout performers. Ashmore Emerging Markets Frontier Equity (EFEIX) gained 24.1%, driven by holdings in Banca Transilvania, Emaar Properties, and FPT Corp, each up more than 25%. PGIM Jennison Emerging Markets Equity Opportunities (PDEZX) wasn’t far behind, gaining 18.5%, thanks to stakes in Taiwan Semiconductor Manufacturing (TSM) and MakeMyTrip (MMYT), which gained 92% and 139%, respectively.

Key Takeaways from 2024

1. Growth Outpaces Value: Large-growth funds dominated, supported by tech leaders and AI-driven stocks, while small-value funds struggled amid broader economic headwinds.
2. Speculative Growth Shines: Mid-cap and speculative growth funds thrived, driven by holdings in high-flying names like AppLovin and Coinbase.
3. International Diversification: Funds with exposure to US tech giants outperformed their peers in both developed and emerging markets.

The Road Ahead

As 2025 begins, equity fund managers face the challenge of sustaining momentum amid evolving market dynamics. While the AI boom and tech dominance continue to offer growth opportunities, navigating speculative investments and sector rotations will be critical to delivering returns in the coming year.