Home' Trinidad and Tobago Guardian : April 5th 2015 Contents Sometimes, nearly every-
Last quarter was a winner for the vast
majority of mutual-fund investors as 87 per
cent of all funds delivered gains. Rising stock
markets around the world and a drop in
interest rates drove the returns, continuing
a year long run for funds.
To be sure, the gains were typically smaller
than what investors enjoyed earlier in this
bull market. But they were widespread. Of
the 95 different fund categories that Morn-
ingstar tracks, 84 logged gains on average.
Those with losses were often in niche areas,
such as Latin American stock funds or
emerging-market bond funds, and likely
play only a supporting role in portfolios.
Consider the mutual fund that s a cen-
terpiece of many retirement accounts: Van-
guard s Total Stock Market Index fund. It s
the largest fund by assets, nearly double the
size of the No 2 fund, and it delivered its
10th quarter of gains in the last 11 despite
starting the year slowly.
It was down more than 3 percent in mid-
January, hurt by worries about plunging
profits for energy companies. The fund tracks
the performance of the broad US stock mar-
ket, and seven per cent of its portfolio is in
the oil and gas industry.
But stocks recovered as the quarter pro-
gressed, and the fund ended up returning
1.8 per cent. It got a particular boost from
smaller companies in its portfolio. It owns
everything from Tel-Instrument Electronics,
which has a market value of about US$20
million, to Apple, which is more than 30,000
Tel-Instrument Electronics stock jumped
20 per cent last quarter, more than Apple
or the large-cap Standard & Poor s 500
index. It was a similar trend across the mar-
ket, and small-cap stock funds generally
beat their large-cap rivals.
The average small-cap growth stock fund
returned 5.8 per cent, versus 3.5 per cent
for the average large-cap growth stock fund.
That s a turnaround from last year, when
small-cap stocks were generally listless due
to worries that they d become too expensive
relative to their earnings.
The surging dollar helped fuel demand
for small-cap stocks. The dollar jumped to
its highest level against the euro in more
than a decade, and it also set multi-year
highs against the Japanese yen, Canadian
dollar and other currencies.
That hurts US companies that do lots of
business abroad because sales made in euros
or yen are worth fewer dollars than a year
Such companies are typically big, while
small-cap stocks generally do more of their
business in the United States, so their rev-
enue isn t as affected.
A look at some of the other trends that
drove fund performance last quarter:
Foreign stock funds
led the way
Central banks in Europe and Japan are push-
ing big stimulus programs for their economies,
sending their stock markets higher. Japanese
stock funds returned an average of 10.9 per
cent last quarter, the best performance of any
fund category. European stock funds returned
an average 4.8 per cent.
Funds that "hedge" to negate the effect of
shifting currency values had even higher
returns. While the falling euro helps revenues
for European exporters, it also erodes returns
of European stocks when translated into dol-
Healthcare stock funds are
Healthcare stock funds have been some of
the best not only over the last quarter but also
over the last year. They returned an average
of 10.7 per cent from January through March,
second-best among 95 fund categories. Over
the last year, they ve returned 32.4 per cent,
also good for second place.
Earnings for healthcare companies are grow-
ing faster than for the rest of the market,
attracting investors. But stock prices have shot
up so quickly that worries are rising they ve
become too expensive.
Even the Federal Reserve has made some
noise. Nearly a year ago, in July 2014, it said
that valuations "appear to be stretched" in
biotechnology. The Nasdaq Biotechnology
index has surged about 35 per cent since then.
Bond funds are defying
Rising rates are one of the biggest fears for
bond-fund investors. They can cause losses
by knocking down the price of existing bonds.
Coming into the year, much of Wall Street
projected that interest rates would rise. The
economy was strengthening, and the Federal
Reserve was expected to raise its key short-
term interest rate for the first time since 2006.
But the Federal Reserve last month indicated
that it may move slower in increasing rates
than many expected. Several economic reports
also came in weaker than expected, and interest
rates dropped during the first quarter. That
drove most bond funds to gains last quarter,
with long-term bond funds delivering the
Index funds are still the top
choice for investors
Investors continued their march into index
funds last quarter, and out of funds run by
stock pickers. Nearly US$23 billion flowed out
of actively managed US stock funds in the
year s first two months, while US$12 billion
went into their index-fund rivals.
Index funds offer lower expenses than
actively managed ones. And over the last 10
years, they ve also offered better performance.
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt APRIL 5 • 2015
1Q Mutual Fund Review:
Nearly everything was a winner
Stock and bond mutual funds of all types racked up more gains
in first three months of the year
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