The year is drawing to a close, and the 20,000 level is well within reach for the Dow Jones Industrial Average.

Markets got off to a bumpy start in 2016, which ensured that this was a challenging year for active fund managers and the performance of funds that they oversaw. International, sector and stock-level headwinds helped push things in the right direction, and as the markets have begun to rise, funds invested in small caps that have the biggest upside potential are reigning supreme. 

Uncertainty over the course of the year ensured that precious metals prices jumped high, and even as that trend tempered, funds with exposure to precious metals have been rewarded handsomely. 

Here's a look at the top funds by performance in 2016: 

Equity Funds: 

It's not been an easy year for equities, but small cap funds have thrived. According to Morningstar data as of Dec. 13, 2016, with over 27% average return, small cap value funds were the best sub-category among equity funds for the year. 

Small Cap 

Hodges Pure Contrarian Fund (HDPCX) was the best performing fund with a year-to-date return of over 75%. The fund has assets of close to $16 million, an expense ratio of 1.4% and invests over 72% of its portfolio in small and micro companies with the intent of long-term capital appreciation. Its investment style makes it a high-risk bet, and the minimum investment threshold is $1,000. 


The best fund in the category is the CM Advisors fund (CMAFX) with a year to date return of 43% as of Dec. 13. This midcap fund has a little over $74 million in assets under management and also boasts a high expense ratio at 1.39%. Even though the minimum investment is $2,500, Morningstar categorizes this fund as having high risk. It has 42 stock positions primarily in sectors like industrials and energy. 

Large Cap 

It's been a rather forgettable year for large cap companies. However, the Stock Dividend fund (SDIVX) returned 38.8% since the start of the year. This fund invests heavily in energy and technology and has exposure to 24 stock positions, including Caterpillar and Bank of America. But with a minimum investment of $100,000, this fund isn't for everyone. 

Bond Funds 

This big winners in this category quite obviously are the high-yield bond funds that in some cases did even better than some large- and mid-cap equity funds. The top performer in this category is Catalyst/SMH High Income A fund (HIIFX) with a year-to-date return of 38.6% as of Dec. 13, 2016. This $43 million fund has a yield of 7.07% and an expense ratio of 1.45%. 

Sector Funds 

In rising markets, typically some sectors ride the momentum better than others, significantly outstripping the performance of the broader markets. 2016 was the year of the equity precious metal funds. Morningstar data shows that the category on average returned over 56% year to date as of Dec. 13, 2016. 

The jewel in the crown was the U.S. Global Investors World Precious Minerals fund (UNWPX) that saw returns at a whopping 80% year to date time period. The fund invests in companies primarily engaged in exploration or mining of precious metals across the globe and has nearly $149 million in assets under management. The expense ratio is high at 1.8% and it has a minimum investment barrier of $5,000. 

International Funds 

Small & mid-cap stocks were performance drivers among international funds. The top performing international fund in 2016 as of Dec. 13, 2016, was Kopernik Global All-Cap A fund (KGGAX) with a return of nearly 53%. The fund is heavily invested in basic materials and industrials with close to 59% of all its stock exposure in mid-, small- and micro-cap companies. The fund has over $995 million in assets, an expense ratio of 1.35% and an investment minimum of $3,000. 

Bottom Line 

Unpredictable markets throughout the year hurt some investments but also created some opportunity for upside for some funds. However, most of the funds that have climbed to the top of the list this year carry a substantial risk component, and any investment into those should be made carefully after understanding your risk profile and a consultation with your financial adviser. 

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