3 Good Funds Having a Terrible Year

Key Concepts

• Quality Growth Stocks: Investments in companies exhibiting consistent growth and resilience during market downturns.
• Value Investing: Identifying undervalued companies with strong fundamentals (balance sheets, cash flow) poised for recovery.
• Turnover Rate: The percentage of a fund’s holdings that are replaced over a given period.
• Style Drift: A manager’s deviation from their stated investment style (e.g., moving from growth to value).
• AI Bubble: The potential for inflated valuations in companies focused on Artificial Intelligence.
• Large Blend Funds: Funds that invest in a mix of large-cap growth and value stocks.

Fund Performance in 2025: A Year of Contrarian Results

The video addresses the underperformance of three otherwise well-regarded funds in 2025, attributing it largely to market conditions favoring speculative stocks and, in some cases, tactical shifts in portfolio management. The core argument is that a single year of poor performance doesn’t necessarily invalidate a fund’s long-term strategy, particularly when that performance is linked to broader market trends.

Wasuch Core Growth – Quality Out of Favor

Wasuch Core Growth, a fund focused on “quality growth stocks” – companies demonstrating steady growth and stability – experienced a 9% loss in 2025, significantly underperforming the broader market. This underperformance is directly linked to the market’s preference for more speculative investments during the year. The fund’s strategy centers on identifying companies that hold up well during downturns, but this strength was not rewarded in a bull market driven by riskier assets.

A significant event during 2024 and early 2025 was the departure of longtime lead manager JB Taylor. However, the analysis suggests this change in leadership is likely coincidental to the fund’s performance. The fund maintains a relatively consistent turnover rate of around 30%, indicating that the new managers didn’t drastically overhaul Taylor’s existing portfolio. The fund currently holds a “Silver” rating, with the expectation that a rebound in quality stocks could improve its performance.

Diamond Hill Large Cap – Value Trapped in a Downtrend

Diamond Hill Large Cap, employing a “value investing” strategy, also struggled in 2025, achieving a year-to-date gain of only 3%, placing it in the bottom percentile of its category. This fund seeks undervalued companies with strong balance sheets and cash flows, anticipating a rebound from depressed levels. Examples of holdings include established, but currently underperforming, brands like Colgate, Palm, Waste Management, and Colico Phillips – all of which experienced double-digit declines in value during the year. The rationale for holding these stocks rests on the belief that their fundamental strength will eventually drive a recovery.

GQG Partners US Select Quality Equity – Navigating the AI Shift

GQG Partners US Select Quality Equity, managed by Rajie Jane, faced headwinds due to a strategic decision to reduce exposure to Artificial Intelligence (AI) stocks. Jane, previously a proponent of companies like Nvidia, concluded that AI valuations were entering “bubble territory” in early 2025 and significantly reduced the fund’s holdings in this sector. While this proved prescient to some extent (with AI stocks giving back some gains in November), the continued surge of these stocks earlier in the year resulted in a 4% loss for the fund, placing it in the bottom percentile of large blend funds.

Jane’s investment approach is characterized by “flexibly moving around the style box,” adapting his strategy based on market conditions. The speaker notes a history of success with this approach and acknowledges owning Jane’s emerging markets fund, which also experienced a challenging year. GQG Partners US Select Quality Equity also maintains a “Silver” rating, with the expectation of potential improvement.

Managerial Flexibility and Market Cycles

A recurring theme throughout the analysis is the importance of understanding a fund manager’s style and recognizing that even skilled managers can experience periods of underperformance. Rajie Jane’s willingness to shift strategy, while potentially risky, is presented as a strength based on his historical track record. The video emphasizes that market cycles play a significant role in fund performance, and a fund’s long-term strategy should be evaluated over a longer timeframe than a single year.

Data and Statistics

• Wasuch Core Growth: Down 9% in 2025. Turnover rate of 30%.
• Diamond Hill Large Cap: 3% year-to-date gain (bottom percentile of category). Holdings down double digits (Colgate, Palm, Waste Management, Colico Phillips).
• GQG Partners US Select Quality Equity: Down 4% in 2025 (bottom percentile of large blend).

Conclusion

The video concludes that despite underperformance in 2025, Wasuch Core Growth, Diamond Hill Large Cap, and GQG Partners US Select Quality Equity remain fundamentally sound funds. The poor results are largely attributed to market conditions favoring different investment styles and, in one case, a deliberate strategic shift. The key takeaway is to avoid hasty judgments based on short-term performance and to consider a fund’s long-term strategy and manager’s track record.