It isn’t surprising how some of the best actively managed mutual funds of 2024 trounced the market. What they’ll do for an encore in 2025 is more of a mystery.

In the large-cap space, the winning ticket was simple: Bet on the Magnificent Seven —companies like Nvidia, Apple, Alphabet, and Microsoft that accounted for more than half the S&P 500 index’s total return. Those stocks show up heavily in funds that topped the large-cap category.

Funds that didn’t tag along with the Mag 7 lost out. While the S&P 500 gained 25%, including dividends, the average large-cap fund returned 21%. And just 25% of large-cap managers beat the market, well below the annual average of about 40%, according to Morningstar.

Small- and mid-cap funds—which didn’t have to contend with the Mag 7 distorting their benchmarks—fared better. The average mid-cap fund returned 13.4%, nearly two percentage points behind the Russell Mid Cap index’s 15.3%. Actively managed small-cap funds returned 11.3%, closely matching the Russell 2000 index.

Beating the market in 2025 may prove tougher. Structural market risks are now elevated, including steep valuations in large-caps and a historically high concentration in the tech and communications sectors at 41% of the S&P 500.

“Stocks bled upward all year. Unless something is real cheap, you might want to wait for a pullback,” says Michael Cuggino, manager of the Permanent Portfolio Aggressive Growth fund, one of the year’s top performers in the large-cap space. “Get your shopping list prepared and wait for the right moment.”

How the stock market will mesh with Donald Trump’s presidency and economic policies also remains unknown. And the bond market will play a role. Yields have been inching up as hopes dwindle for interest-rate cuts in 2025. That impacts stocks by depressing multiples, and it tends to hit stocks with the steepest valuations the hardest, though it has ripple effects through banks and other rate-sensitive sectors.

Large-cap managers are now in a bind. Many are clinging to Nvidia and other tech names. But those stocks have become highly crowded trades, leaving fewer incremental buyers and more potential for losses if selling pressure picks up. Some skittishness may already be emerging—volatility has picked up, and the tech-heavy Nasdaq Composite is down about 3% from its mid-December high.

A note about our list of winners.Barron’s screened for funds with the top 2024 performance in their Morningstar category. We only included funds that are open to new investors and have at least one retail share class. Without those criteria, other funds might have come out on top.

We also didn’t screen funds by asset size or expense ratio. Many funds on our list have expense ratios well above Morningstar’s asset-weighted average for active funds of 0.59%; high-fee funds are at a big disadvantage at consistently producing market-beating returns.

Note: Five- and 10-year returns are annualized.  N/A = not applicable Source: Morningstar Direct

Kirr, Marbach Partners Value Fund (KMVAX) had net assets of $91 million and 41 holdings as of 12/31/2024.  The fund’s investment objective is long-term capital growth.  During its most recent fiscal year, the fund’s portfolio turnover was 9%.

Schwartz Value Focused Fund (RCMFX) is a concentrated fund with net assets of $39.7 million and 19 holdings as of 9/30/2024.  The fund’s investment objective is to seek long-term capital appreciation.  During its most recent fiscal year, the fund’s portfolio turnover rate was 24%.  “Standardized” performance and other fund information can be found on the fund’s website.

Gotham Enhanced Return Fund (GENIX) is a long/short U.S. equity fund with a net long exposure of 100% (e.g. 170% long vs. 70% short = 100% net long) and had net assets of $274.5 million and 695 long and 547 short holdings as of 9/30/2024.  The fund’s investment objective is to seek long-term capital appreciation.  During its most recent fiscal year, the fund’s portfolio turnover rate was 222%.  “Standardized” performance and other fund information can be found on the fund’s website.

FullerThaler Behavioral Unconstrained Equity Fund (FTZAX) is a concentrated fund with net assets of $114 million and 26 holdings as of 9/30/2024.  The fund’s investment objective is to seek long-term capital appreciation.  During its most recent fiscal year, the fund’s portfolio turnover rate was 19%.  “Standardized” performance and other fund information can be found on the fund’s website.

Carillon Scout Mid Cap Fund (UMBMX) had net assets of $3 billion and 126 holdings as of 12/31/2024.  The fund’s investment objective is long-term growth of capital.  During its most recent fiscal year, the fund’s portfolio turnover rate was 112%.  “Standardized” performance and other fund information can be found on the fund’s website.

Kirr, Marbach Partners Value Fund – Standardized Performance

The Fund’s Gross Expense Ratio was 1.56% and Net Expense Ratio was 1.46% according to the Prospectus dated January 26, 2024. The Adviser has contractually agreed to reduce its fees at least until February 28, 2025.

Performance data quoted represents past performance; past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by calling 1-800-980-8039.

The fund imposes a 1.00% redemption fee on shares held less than 30 days. Performance data quoted does not reflect the redemption fee. If reflected, total returns would be reduced.

The fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The statutory and summary prospectus contain this and other important information about the fund and may be obtained by calling the Kirr, Marbach Partners Value Fund at 800-870-8039. Please read it carefully before investing.

(1) The performance data quoted assumes the reinvestment of capital gains and income distributions. Performance also reflects fee waivers in effect. In absence of fee waivers, total return would be reduced. The performance does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

(2) The S&P 500 Index is an unmanaged, capitalization-weighted index generally representative of the U.S. market for large capitalization stocks. This Index cannot be invested in directly.

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