Speculative investors love looking for disruption. The idea of these hyper-growth seeking traders is to find companies that are radically disrupting an industry and invest in them early to secure an aggressive growth in the stock’s price before it happens. Then when the company has hit a point of stabilizing growth, it’s time to move on.

In 2013, this approach paid off handsomely. But history doesn’t always repeat itself, and 2014 has shown a very different result.

To demonstrate this, let’s take two baskets of stocks: one is hyper-growth and speculative, and the other is a group of more boring but solid stocks that are either deep value or high and reliable (but mature) growth.

Our first group is by definition tech heavy, but still covers a variety of sectors. We’ll include Tesla (TSLA), Pandora (P), Twitter (TWTR), Splunk (SPLK), Organovo (ONVO), Mannkind (MNKD), Linkedin (LNKD), and T-Mobile (TMUS). Most of these stocks are hyper-growth, while some are highly speculative and depend on either an acquisition or the rapid development of a new technology. In any case, all are favorites of short-term traders who have no fear of risk:

2014 Chart

Click on image to zoom

This portfolio has returned about 5.8% for the year assuming equal weighting, which is about a third of what the broad market (SPY) has done for the year. These gains were helped mostly by TSLA, a favorite of short-term traders and hedge funds alike, while the more volatile and controversial ONVO, TWTR, and SPLK dragged returns down the most. Most importantly: four stocks have seen negative returns, suggesting that uneven allocation and greater due diligence could help drive the returns of this portfolio up substantially.

Now for the boring portfolio, which is both growth and value. In this we have an equal exposure to tech, but from much more established companies. Also, we have no exposure to biotech or pharma, because those returns have been distorted through tax-driven M&A activity that we won’t consider here. For this portfolio, we’ll included Apple (AAPL), Google (GOOG), Ford (F), Disney (DIS), General Mills (GIS), Goldman Sachs (GS), Verizon (VZ), and IBM (IBM). Many of these companies directly compete with the companies in the exciting portfolio—in other words, these are the companies that our other portfolio is trying to disrupt.

2014 Portfolio

Click on image to zoom

This portfolio has returned 9% this year on an equal weighting, which is actually a little higher than SPY has done for the year so far. While the alpha of 0.3% isn’t much to justify management fees, it is something, and the portfolio also provides something of much greater value: risk-adjusted returns. While the portfolio as a whole was briefly negative at the end of January, it has been positive for most of the year and, much more crucially, every single stock is up as of the beginning of September.

This is important for two reasons. For one, it makes withdrawals for shareholder distributions much easier. With this portfolio, the manager can choose which stocks to liquidate; in the earlier portfolio, a fund manager who chooses to liquidate one of the negative stocks is realizing those losses. But liquidating one of the outperformers could cause the portfolio to weight more towards laggards and raise the risk of a total negative return in the future.

Secondly and more importantly, it allows greater flexibility for rebalancing to minimize risk and maximize returns. With all stocks up, the fund manager can, say, take 10% of AAPL’s gains and reinvest them in GOOG, where conviction in that stock’s continued strength is stronger than ever, even if the market is more pessimistic.

The flexibility and power of having a portfolio of all gainers is one of the more hidden but crucial features of a good money manager. Additionally, this exercise demonstrates that boring is often good when it comes to investing, and portfolios can invest in dull stocks but still deliver outsized returns. This doesn’t mean eschewing growth investing entirely, but it does mean that a careful selection not only for growth potential but also for risk is very important to the investor who is looking to produce a portfolio that delivers returns.