Nearly Everyone's A Winner: Funds Rose Again Last Quarter

NEW YORK (AP) — The good times keep rolling for fund investors.

         Nearly every type of fund rose last quarter, whether focused on stocks or bonds, U.S. or foreign. Gains were so widespread that more than 7,000 of the roughly 7,600 funds that Morningstar tracks made money over the last three months. The nearly universal climb for funds means many retirement accounts and other portfolios are the largest they've ever been. The average 401(k) balance had already come into the second quarter at a record level, according to Fidelity.

         The good times, though, also coincide with some increased risks. Stocks are near their most expensive level in years compared to their earnings. And bonds, which are supposed to be the safe part of a portfolio, are at risk for losses if interest rates rise, as many economists expect will happen eventually. Some analysts warn market swings will get bigger once central banks around the world follow the Federal Reserve's lead and dial back on stimulus and raise interest rates.

- Sponsors -

         For now, though, investors have been basking in the upside. Corporate profits are back on the upswing, which drove stock prices higher around the world, and continued low interest rates helped push bond funds.

         The largest mutual fund by assets, and one that's the centerpiece of many retirement portfolios, closed out its seventh straight quarter of gains. Vanguard's Total Stock Market Index fund returned 3.1 percent for the three months through Thursday.

         Here's a look at some of the trends that shaped the second quarter for fund investors. All performance figures are for the three months through last Thursday:

- Partner Content -

Entergy’s Energy Smart Program Brings Cost Conscious Innovation to New Orleans

Offering comprehensive energy efficiency at no cost to the consumer, Entergy’s Energy Smart program incentivizes Entergy New Orleans customers to perform energy-saving upgrades in...

 

— Anything growing quickly, or with the potential to do so, was hot.

         The economy is still stuck in a lackluster pace, and its growth downshifted to 1.4 percent in the first three months of the year from 2.1 percent in last year's final quarter. With strong growth scarce, investors bid up the stocks that are capable of providing it.

- Sponsors -

         Technology companies are expected to have some of the strongest gains in earnings this year. Not only are businesses looking to use technology to improve their productivity, consumers are also making it an increasing part of their daily lives. That helped earnings for tech companies in the S&P 500 soar more than 20 percent in the first quarter, and technology stock funds returned an average of 6.4 percent over the last three months.

         Funds that focus on growth stocks more broadly, including those in the health care and other industries, were also strong. Large-cap growth stock funds returned 4.9 percent, for example, versus 1.8 percent for large-cap value stock funds.

 

— Foreign stock funds were popular.

         U.S. stocks have been the world's leaders for years. But more dollars have recently flowed into funds focused on stocks outside U.S. borders.

         That's partly because foreign stocks' struggles in recent years means stocks from Europe and emerging markets don't look as expensive as their U.S. counterparts. Growth in corporate profits for companies around the world is also back on the rise.

         A resurgence for the euro and other currencies against the dollar last quarter likewise boosted foreign stocks. It meant each euro rise in a French stock's price was worth more in dollar terms than before.

         The most popular type of foreign stock fund, ones that hold a mix of large-cap stocks, returned an average of 5.9 percent. That's more than double the 2.8 percent for their U.S. counterparts.

         Investors have seen the split in performance and moved their money in pursuit of it. During May, for example, investors plugged nearly $36 billion into foreign stock mutual funds and exchange-traded funds. At the same time, they withdrew $3.1 billion from U.S. stock funds, according to Morningstar.

 

— Bond funds still aren't dead.

         Coming into the year, the expectation was for bond funds to struggle badly.

         Interest rates were on the rise due to expectations of faster economic growth and inflation. And rising rates mean price drops for the bonds sitting in the portfolios of bond funds.

         But interest rates have instead sunk this year, as inflation remained low and economic growth remains modest.

         That helped drive the most popular category of bond funds, ones that own intermediate-term bonds, to an average return of 1.6 percent over the last three months. They've done better than that just four times in the last 17 quarters.

 

— Commodity funds were outliers.

         Among the relatively few losers last quarter were funds that focus on oil and other commodities.

         The price of crude continues suffer from estimates that wells around the world are producing more oil than customers need. Crude dropped below $43 per barrel in late June, down from roughly $50 a year ago.

         Funds that own energy stocks lost an average of 12.1 percent, and ETFs that try to track the price of crude had similar drops.

         ETFs that track gold also lost ground, as low inflation dulled the appeal of the metal as an investment. The SPDR Gold Trust, which trades under the symbol "GLD," slipped 0.9 percent.

         – by AP Reporter Stan Choe

 

Digital Sponsors / Become a Sponsor

Follow the issues, companies and people that matter most to business in New Orleans.

Email Newsletter

Sign up for our email newsletter