By Ian Salisbury
It isn't easy for stock fund managers to beat the market. When they do, you might want to listen to what they say.
With the S&P 500 index up 16% in 2025, keeping pace has been difficult for funds that didn't own large helpings of stocks leading the charge: tech giants like Nvidia, Broadcom, and Alphabet.
Through midyear, only 31% of active U.S. stock funds had managed to beat a comparable index fund over the past 12 months, according to Morningstar. That was down from 44% a year earlier.
Yet a handful of funds are beating the market. And some of the winning managers have found ways to thrive beyond tech, emphasizing stocks in sectors such as industrials, materials, and healthcare.
Barron's recently connected with three fund managers who delivered some of the best returns this year, through Nov. 30. We wanted to find out how they did it and, more importantly, where they see bargains for 2026.
Tanaka Growth
With just $31 million in assets, Tanaka Growth flies under the radar. It may be time to pay attention. The fund is up nearly 50% this year and returned 22.4% over the last five years on an annualized basis, beating 99% of rivals, according to Morningstar.
Graham Tanaka, a trained engineer with an M.B.A. from Stanford, started the fund in 1998 after spending decades on Wall Street. He and co-manager Benjamin Bratt, who joined him as co-portfolio manager this year, run a highly concentrated portfolio of two dozen stocks. To find bargains, Tanaka often meets with companies before investing, trying to ascertain if they have a real competitive edge. "We meet management, ask tough questions, and try to get better answers," he says.
The fund is unusual in another way: It's packed with small- and mid-cap stocks. The average market cap of stocks in the fund is just $32 billion, compared with $730 billion for the typical large company fund.
Tanaka also takes big swings at a few stocks. The fund has 8% of its assets in Apple and 11% in Nvidia. Its biggest position, however, is in a biotech company called Corcept Therapeutics, at 15% of the portfolio.
The company's flagship drug, Korlym, treats Cushing's syndrome, a rare hormonal disorder caused by too much exposure to cortisol. Sales are going strong, but the company aims to leverage its expertise in cortisol to expand into other areas, as its early research shows controlling cortisol can help treat diseases ranging from cancer to ALS.
The company reported positive Phase III trial results for its new ovarian cancer treatment, relacorilant, in March, and said it expects the Food and Drug Administration and European regulators to finish their reviews in 2026. Additionally, the company is enrolling patients in a prostate cancer trial and expects to start a Phase III ALS trial next year.
"They've got 10 years of growth ahead of them," says Tanaka, who isn't deterred by Corcept's price/earnings ratio of 81 times estimated 2025 profits of $1 a share. Assuming the company wins approval for the ovarian treatment, he says, the stock could jump from $82 to more than $180 in 2027.
Another smaller company in the fund is United States Antimony. The mining firm is the only U.S. producer of antimony products -- materials that are critical to making batteries, solar panels, and ordnance for the military. While China dominates the global antimony market, it began restricting U.S. exports last year. The standoff helped U.S. Antimony secure a five-year, $245 million deal with the Pentagon in September and a $107 million commercial contract that the company disclosed in November.
The stock trades at 21 times expected 2026 earnings. While the company reported a $5 million loss in the third quarter, sales are growing fast. The company expects $40 million to $43 million in revenue for 2025, and $125 million in 2026. "It's a unique company that has pretty attractive company-specific growth opportunities," says Bratt.
One knock on this fund: Its highly concentrated portfolio swings wildly and has gone through bad spells. The fund trailed the market every year from 2016-20 and its 10-year annualized return of 13.6% trails the S&P 500 and 90% of peers, according to Morningstar.
Alger Focus Equity
The $4.5 billion Alger Focus Equity fund has returned 40% this year. Even more remarkable, it has returned 20% a year annualized over the past decade, ranking it among the top 2% of large growth funds in Morningstar's database and handily beating the S&P 500, which has returned less than 15% a year over the same span.
Managers Patrick Kelly and Ankur Crawford are banking on tech: More than two-thirds of the fund's assets are in tech and communications stocks, compared with 46% in the S&P 500. "We want to own companies that are innovating and benefiting from change, and avoid traditional business models that are being disrupted," says Kelly.
The fund's 49 stocks include big tech names like Microsoft and Nvidia, along with some lesser-know companies such as AppLovin, which has been in the portfolio since 2024.
AppLovin's stock has been on fire, nearly doubling in 2025. Shares now trade at 45 times estimated 2026 earnings. Kelly still thinks Wall Street is underestimating its earnings growth.
The company, which places ads in mobile games, should benefit from artificial intelligence in two ways, he says: By using the technology to target videogame ads more efficiently; and by lowering the cost of ads, making it affordable for merchants to create ads tailored just for videogames. Kelly adds that AppLovin launched a major e-commerce push in October and has been expanding its ad platform abroad -- moves he sees fueling growth in coming years.
Another sizzling stock for Alger has been Western Digital. The hard-drive maker has seen its fortunes transformed by AI; shares are up 255% this year.
Remarkably, the stock is still cheap, trading at 21 times estimated 2026 earnings and 18 times 2027 consensus estimates. The low multiples reflect skepticism that the company has shed its highly cyclical history -- subject to the boom-and-bust commodity business of supplying PC components. Lately, however, Western Digital has signed long-term contracts with large, blue-chip customers that should provide stability and attractive pricing for years. "Data is exploding," says Kelly. "It's only becoming more valuable as AI is being applied to it."
Another recent purchase is QXO, (a Barron's stock pick in August). The company is run by billionaire Brad Jacobs, a serial entrepreneur whose strategy is to roll up building-supply companies. QXO closed its first major deal in April, buying Beacon Roofing Supply for $11 billion. Jacobs aims to double the company's annual operating profits to $2 billion over the next five years, while looking for other acquisition targets.
"Their target is to create a building-products distributor with $5o billion in revenue by 2035," Kelly says. "They have a lot of experience doing this -- increasing market share and driving out costs."
Fidelity Large Cap Stock
The $6.5 billion Fidelity Large Cap Stock fund is building on a long stretch of success. Its 25% return this year beat 97% of rivals, according to Morningstar. Also impressive, the fund's 15% average annualized return over the past decade puts it in the top 10% of large blend funds.
The fund owns 169 stocks, none comprising more than 8% of assets. Annual turnover is just 17% (compared with more than 90% for Alger Focus). The fund has held almost all its top 10 holdings since at least 2022; the one exception is GE Vernova, created by a spinoff in 2024.
Unlike many peers, portfolio manager Matthew Fruhan isn't chasing tech. The sector accounts for 26% of the portfolio, well below the industry average. Instead, Fruhan is emphasizing relatively cheaper industrials and financials, including GE Vernova, Boeing, GE Aerospace, Wells Fargo, and Bank of America.
Boeing, also a Barron's stock pick , has been righting itself after years of quality-control problems and 737 MAX crashes in 2018 and 2019. The shares, which have gained around 22% this year, trade at 99 times 2026 earnings. But Boeing is still only producing jets at about half its targeted pace.
In October, the company scored a win when regulators cleared it to produce 42 737 MAX planes a month, up from 38. Assuming a big jump in revenue over the next few years, the stock doesn't look expensive at about 25 times expected 2028 earnings.
"Investors can be misled if they look at short-term earnings with a cyclical stock," says Fruhan. "When earnings are dramatically depressed, they say, 'Oh my gosh, it's really expensive.' On the flip side, when a cyclical stock is humming, it's probably overearning. But the P/E on those earnings is going to look really low."
Wells Fargo is another stock that Fruhan sees coming back from a difficult period. Fruhan gives high marks to CEO Charles Scharf, appointed in 2019, who basically "changed the guts of the company" after a scandal-plagued stretch at the bank. The Federal Reserve lifted its longstanding restrictions on Wells Fargo's growth in June, a sign of confidence that the bank is running stronger.
Fruhan says Wells Fargo's "financial profile" should eventually catch up to megabank leaders like JPMorgan Chase, which has gained more than 540% over the past decade, compared with 130% for Wells. While both stocks have had a strong 2025, gaining more than 30%, Wells still trades at a slight discount to JPMorgan and could get closer as profitability improves.
Fruhan thinks AI will help Wells Fargo and other megabanks as they pour tens of billions into tech upgrades that smaller rivals can't to match. "They're going to build their competitive advantage," he says. "The large are going to get larger."
Write to Ian Salisbury at ian.salisbury@barrons.com
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December 18, 2025 12:19 ET (17:19 GMT)
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