The June quarter ended with the S&P 500 clocking a healthy 8 percent total return, yet a handful of Morningstar Gold-rated funds quietly did even better. Their success was no accident. By blending forward-looking themes—most notably artificial-intelligence infrastructure, steady-earning healthcare franchises, and a low-volatility bias—each fund nudged performance ahead of the benchmark while keeping risk in check. Below, we unpack the numbers, isolate the shared factor tilts, and draw out practical lessons for do-it-yourself investors building their own portfolios.
A Quick Look at the Scoreboard
| Fund (share class) | Morningstar Category | Q2 2025 Total Return | Excess Return vs. S&P 500 | 3-Year Annualized Return | Net Expense Ratio |
|---|---|---|---|---|---|
| Vanguard Dividend Growth (VDIGX) | Large-Blend | 10.1 % | +2.1 % | 12.4 % | 0.26 % |
| T. Rowe Price Blue Chip Growth (TRBCX) | Large-Growth | 9.7 % | +1.7 % | 13.9 % | 0.69 % |
| American Funds AMCAP (AMCPX) | Large-Growth | 9.2 % | +1.2 % | 11.6 % | 0.60 % |
| Vanguard Dividend Appreciation ETF (VIG) | Large-Blend ETF | 8.6 % | +0.6 % | 10.8 % | 0.06 % |
| S&P 500 Total Return | — | 8.0 % | — | 10.0 % | — |
Returns are for the quarter ended 30 June 2025; data rounded to one decimal.
While a single quarter barely scratches the surface of a fund’s long-term story, short-term outperformance can still reveal how certain portfolio tilts pay off when market winds are favorable. In Q2, three broad themes separated the winners from the pack: an overweight to the AI supply chain, a generous helping of healthcare stalwarts, and a quality-first discipline that naturally lowers portfolio volatility.
Theme 1: Riding the AI Supply Chain—But Not Blindly
All four funds owned the obvious megacap AI backbones—Nvidia, Microsoft, and Alphabet—but more interestingly, each built satellite positions in less-obvious beneficiaries:
- Chip equipment makers such as ASML and Lam Research helped widen exposure beyond a single designer.
- Data-center landlords and communication-infrastructure firms captured the physical layer of the AI boom.
- Specialty software vendors with recurring revenue streams offered growth without the regulatory spotlight fixed on big-tech platforms.
The funds differed in magnitude—TRBCX ran the boldest tilt, dedicating roughly one-quarter of assets to information technology—yet every manager framed positions inside a valuation discipline. Their commentary stressed free-cash-flow visibility and durable competitive advantages, not headline-grabbing hype. That discipline mattered in late May when highly speculative AI small-caps corrected sharply. By sticking to wide-moat suppliers, the funds held their gains.
Take-away for DIY investors: It’s fine to lean into a hot theme, provided the underlying businesses are proven cash generators. Broad exposure across the entire value chain, not just the poster-child stock, spreads risk without giving up upside.
Theme 2: Healthy Allocations to Healthcare
Second-quarter macro data lifted recession chatter but did little to dent earnings at drugmakers, medical-device firms, and managed-care companies. Each gold-rated fund kept at least a 12 percent weight in healthcare—versus roughly 11 percent for the S&P 500—and in some cases closer to 15 percent.
The overweight was not just defensive. Pharmaceutical pipelines benefited from AI-assisted drug discovery, while elective-procedure volume rebounded after pandemic-era slowdowns. Dividend-oriented funds (VDIGX and VIG) favored “Dividend Aristocrats” such as Johnson & Johnson and Abbott, names that combined yield with secular growth drivers like aging populations and chronic-disease management.
Take-away for DIY investors: Healthcare can play double duty—cushioning market drawdowns while still offering structural tailwinds. A modest overweight can improve risk-adjusted returns without sacrificing growth potential.
Theme 3: A Low-Vol, High-Quality Core
Two of the funds (VDIGX and VIG) explicitly target companies with long records of rising dividends. That screens out many speculative growers and heavily indebted balance sheets, tilting both portfolios toward lower beta than the broader market. Meanwhile, the growth-oriented funds still demanded robust cash generation; they simply reinvested it into R&D instead of dividends.
Low-volatility attributes surfaced in sector allocations too—utilities were under-weighted, but consumer-staple giants like Procter & Gamble and Costco filled the defensive gap while chipping in respectable earnings growth. The result: downside capture ratios below 90 percent over the past five years. In a quarter where market leadership see-sawed between offense and defense, that steadiness paid dividends—literally and figuratively.
Take-away for DIY investors: Quality factors—consistent profitability, strong balance sheets, shareholder-friendly capital allocation—often matter more than simple valuation multiples over the long haul. An embedded low-volatility tilt can smooth the ride, making it easier to stay invested during inevitable rough patches.
How the Themes Intersected
A deeper look at the holdings reveals why the combination worked so well:
- AI and Healthcare Overlap: Large drugmakers are using advanced computing to shorten discovery timelines. Holding both sectors lets investors benefit from AI’s downstream productivity gains, not just chip-maker earnings.
- Quality Filter Kept Speculative Bets Tame: None of the funds went “all-in” on micro-cap AI names that doubled and halved within weeks. Instead, each picked high-moat enablers with pricing power.
- Dividend Discipline Reinforced Vol Control: Regular payouts forced managers to favor cash-rich companies, which tend to fall less in down markets.
These reinforcing elements created a sweet-spot blend of growth and stability—exactly what many diversified investors seek.
Building a DIY Portfolio With Similar Traits
You don’t need to replicate every holding to capture the essence. A three-fund recipe can approximate the same profile:
- A Broad-Market Core ETF (e.g., VTI or ITOT)—delivers low-cost exposure to thousands of U.S. stocks.
- A Focused Technology & Innovation Sleeve (e.g., a Nasdaq-100 tracker or an actively managed disruptive-tech fund)—captures AI beneficiaries.
- A Quality Dividend ETF (e.g., VIG or SCHD)—adds consistent income and lowers volatility.
Allocate roughly 60 / 25 / 15 or 50 / 30 / 20 depending on your risk tolerance. Rebalance annually to maintain target weights and trim sectors that sprint too far ahead.
Monitoring Risk
- Position Size: Trim allocations when single-stock weightings breach comfort zones.
- Factor Drift: If tech surges, healthcare weight may fall; rebalance to avoid concentration risk.
- Macroeconomic Shifts: Rising rates can compress growth-stock valuations. Make sure the quality-dividend sleeve still aligns with your income needs.
Why Fees Still Matter
Notice the net expense ratios in the table—two funds charge less than 0.30 percent, one under 0.10. Compounded over decades, that gap widens returns meaningfully. Whenever you tilt toward active management, confirm you’re getting a clear process, consistent execution, and after-fee outperformance potential. If a fund can’t articulate its edge—or if the edge doesn’t survive fees—keep looking.
Questions for Your Own Due Diligence
- Does the manager have a repeatable process? Gold-rated funds typically detail buy/sell criteria in plain language.
- How does a fund behave in a downturn? Review downside-capture ratios and maximum-drawdown data before chasing recent gains.
- Is performance diversified or concentrated? A portfolio heavily reliant on a single megacap may deliver thrills now but headaches later.
- Do sector tilts match your long-term outlook? Overweights should reflect durable beliefs, not fleeting fads.
Bottom Line
The second quarter reminded investors that beating a broad benchmark like the S&P 500 doesn’t require heroic, high-risk wagers. For the four Gold-rated funds highlighted, consistent outperformance came from thoughtful factor tilts—leaning into AI’s infrastructure winners, keeping a steady foothold in healthcare, and insisting on balance-sheet quality that naturally dampened volatility.
For hands-on investors, the blueprint is clear:
- Blend growth engines with dependable cash-flow generators.
- Keep costs low, but pay up—within reason—for managers who demonstrate skill.
- Stay humble about timing and instead focus on structure—the mix of factors you own and the discipline with which you maintain them.
Do that, and you stand a better chance of not only matching the market over a full cycle but occasionally slipping ahead—without losing sleep along the way.
Disclosure:
The information above is provided for educational and informational purposes only and does not constitute investment advice, trading advice, or a solicitation to buy or sell any financial instrument. Past performance is not a guarantee of future results. All investments carry risk, including the possible loss of principal. Always conduct your own research or consult a licensed financial professional before making any investment decision.