After the broad market's worst April since 1970, the market is way down for the year. It's hard to find mutual funds in positive territory for the year amid the S&P 500's 12.00% sell-off. But $3.3 billion JPMorgan Large Cap Value Fund (HLQVX) is clinging to a 1.30% gain, going into Wednesday.
That puts it into an elite minority of mutual funds that are ahead in 2022.
Even its large-cap value rivals tracked by Morningstar Direct are down 4.35% on average this year.
Mutual Funds: This JPMorgan Fund Is Up
What explains the fund's buoyancy amid a market so challenging for mutual funds? For one thing, the value-oriented fund is flexible. Its portfolio includes growth stocks. But many growth stocks are still too pricey for manager Scott Blasdell to begin a buying spree. "Growth stocks have sold off a bit," he said. "But they have a ways to go."
Blasdell feels growth stocks in general will pull back more due to rising interest rates and higher inflation. Meanwhile, those conditions tend to help value stocks. And many value stocks (plus a few growth names) have given the fund its lift this year.
Still, IBD readers will recognize a number of holdings. Four were members of the IBD 50 as of Wednesday. One was part of the IBD Leaderboard.
Leaderboard is IBD's curated list of leading stocks that stand out for their technical and fundamental prospects. The IBD 50 is IBD's flagship screen of leading growth stocks that show strong relative price strength and top-notch fundamentals.
Stocks That Help Mutual Funds
Among both value and growth holdings overall, energy stocks Chevron and Hess are up 40% and 45% respectively so far this year.
Pharmaceuticals firms Bristol-Myers Squibb and Vertex Pharmaceuticals are up 22% and 23%.
Miner Alcoa is up 9%, Host Hotels & Resorts is up 14% while security services provider Leidos is up 16%. In addition, insecticides maker FMC is up 13% while fertilizer maker Bunge is up 26% and health care products provider McKesson is up 24%.
Stocks in the technology and biotechnology sectors, two traditional hotbeds of growth names, accounted for just 7.1% and 2.5% respectively of the fund's money as of Dec. 31.
Weighing ESG Factors
What is Blasdell seeking in his buys? He and his team want to find stocks with potential for capital appreciation. "With that as a background, we look for those stocks that have the most attractive valuations," he said. "We typically have 70 to 110 stocks in the portfolio."
Blasdell added, "And we're not afraid to take big positions versus our benchmark," the Russell 1000 Value Index, "to drive returns, especially when we see great opportunity."
In addition, like a growing number of managers of mutual funds, Blasdell weighs environmental, social and governance (ESG) factors in his buy decisions. But ESG factors do not keep him from buying a stock whose financials he likes. His energy stocks, for example, tend to have low environment scores.
Energy Outlook
Blasdell thinks many energy stocks have more room to run and will continue to drive many mutual funds. "Once the war in Ukraine started, it extended the period when energy stocks can outperform," he said. "Initially it was not clear what would happen." Now it's clear that global supply will remain crimped for an indeterminate period. "I wouldn't be surprised to see energy prices go up, so we've maintained our energy overweight."
Similarly, food supplies will decline while there's no reason to expect demand to. "Whether that's stocks like Bunge or FMC, companies involved in the farm economy definitely benefit from what's going on," Blasdell said, referring to lower production of food, nitrogen for fertilizer and sunflower for oil and seeds by Ukraine.
Blasdell added, "What attracted us to FMC is that they made the acquisition of the agricultural chemicals division of the old (pre-2019 stock split) DuPont."
Basically, DuPont sold part of its crop protection business to FMC. FMC acquired DuPont's health and nutrition business. "FMC has been effective at exploiting some of the chemicals they bought from DuPont," Blasdell said. "Earnings have been growing. They're beneficiaries of a strong farm economy. And share price is about 17 times our estimate of next year's earnings, which is cheap. We still like that one."
Prognosis For Vertex
Vertex Pharmaceuticals' total return has outperformed the S&P 500's by about 3.5 percentage points a year on average over the past five years. No surprise, then, that the number of mutual funds owning shares grew to 2,797 as of March 31 vs. 2,554 at the end of June 2020, according to analysis by MarketSmith.
Vertex makes therapies for cystic fibrosis. "The Street (Wall Street) was worried about competition for Vertex from AbbVie among others," Blasdell said. "But we think they've got enough innovation and that their drugs are superior enough, that we're not worried about their competition. And on top of that, they've got drugs in their pipeline."
Going into Wednesday, shares were trading around 270. "Their cystic fibrosis business is worth about 250 of the current stock price. So you're getting the pipeline for very little. And earnings are forecast to grow at 16% annually on average over the next several years."
JPMorgan Large Cap Value Fund also held AbbVie as of Dec. 31.
Over the past three years, the fund has topped the S&P 500 with an average annual return of 14.63% vs. 14.24% for the bogey and 10.71% for large-cap value mutual funds on average.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and actively run portfolios that consistently outperform and rank among the best mutual funds.
