Morgan Stanley’s Insight and Institutional Growth funds are up more than 50% since mid-February © AP

Two Morgan Stanley mutual funds have navigated the pandemic better than any other US funds, thanks to big bets on some of the year’s hottest technology stocks.

The New York-based company’s Insight mutual fund had gained 59 per cent and its Institutional Growth fund is up 55 per cent since February 19, the market’s pre-coronavirus peak, as of Wednesday. 

The two funds come out on top in a performance survey conducted by Morningstar for the Financial Times, examining returns net of fees for more than 1,500 US-based actively managed mutual funds and exchange traded funds that had at least $1bn in mid-February.

The analysis spanned funds that invest in US and international stocks, bonds and commodities, and focused on the cheapest share class of the mutual funds included. It was carried out using last Thursday’s net asset values.

The Morgan Stanley funds that came out on top far outpaced the S&P 500, which took until last week to return to its mid-February level and is up nearly 3 per cent more since then.

Line chart of Rebased from February 19 showing Two Morgan Stanley mutual funds soar through pandemic

The two funds are run by the same team of portfolio managers led by Dennis Lynch with Sam Chainani, Armistead Nash, David Cohen and Alexander Norton. Both have soared by loading up on the types of tech stocks that have powered the market this year.

Shopify, the biggest holding for both funds at the end of July, has doubled in value since February 19. The Canadian company, which helps small and medium-sized businesses sell products online, had experienced “a massive acceleration in the adoption of what they provide” as locked down consumers turned to ecommerce, said Mr Lynch. 

The funds held Shopify stock before the February high and increased their positions as markets began to sell off before it began its recent rally in late March.

“People were underestimating how much [ecommerce companies] might benefit from some of the changes that were occurring,” Mr Lynch said.

Coupa Software, which provides accounting tools to businesses, was the second-largest holding in the Insight fund and is up 90 per cent since the February market peak.

Square, a payments company, and Amazon, were the second and third biggest holdings for the Institutional Growth fund at the end of July. Amazon is up nearly 60 per cent since February 19.

Insight has since more than doubled in size to $5.1bn as of the end of July, while Institutional Growth grew nearly two-thirds to $13bn, according to Morningstar data. In addition to the performance boost, the Insight fund took in $1.3bn in new money from the beginning of March to the end of July, while the Institutional Growth portfolio saw $1.1bn in inflows.

Morgan Stanley’s funds had benefited from taking more concentrated positions than some more diversified products that “aren’t going to tend to stand out in one direction or another”, said Mr Lynch. Both funds had only 37 holdings as of June 30.

The worst-performing equity fund was Center Coast Brookfield Midstream Focus, according to Morningstar’s analysis. The fund is an energy sector specialist whose investments were hit hard by the collapse in the price of oil and the recession caused by Covid-19. The fund lost 36 per cent between February 19 and last Thursday. It was down 39 per cent as of Wednesday night.

Value funds, which target stocks the manager believes are underpriced relative to earnings or other measures, were also “pummeled during this environment”, said Katie Reichart, director of US equity strategies at Morningstar. These were weighed down by poor performance for energy stocks and banks, which are grappling with lower interest rates and an increase in losses on bad loans — a big contrast to the types of tech stocks leading the market.

Funds with large positions in “the really hot growth stocks just continued to perform really well in this whole ordeal”, said Ms Reichart.

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