Home' Trinidad and Tobago Guardian : October 4th 2015 Contents SBG10 STOCKS
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt OCTOBER 4 • 2015
Sometimes, pain hits nearly everywhere. The
vast majority of mutual funds skidded to losses
last quarter as worries worsened about global
economic growth. Uncertainty about interest
rates made markets even shakier.
Only 17 per cent of the mutual funds tracked by Morningstar
were able to scrounge out positive returns in the three months
through September. That s down from 41 per cent in the
second quarter, and it s the reverse of the first quarter, when
87 per cent of funds made money.
The biggest losses last quarter came from funds that invest
in stocks, which is typical when fear is high. Bond funds offered
some protection, fulfilling their traditional role of stabilisers
for a portfolio, but not as much as they have in prior down-
Here s a look at how US mutual funds performed during the
--- Stock funds struggled
All but three of the 2,255 mutual funds that focus on US
stocks had losses.
They couldn t overcome worries that a slowing global econ-
omy will hurt profits for US companies, which are increasingly
reliant on customers abroad. The Federal Reserve s decision
to hold off on raising rates at its last meeting also shook mar-
Consider the largest mutual fund by assets, Vanguard s Total
Stock Market Index fund, which helps make up the core of
many 401(k) accounts and IRAs. It lost 7.3 percent over the
three months. That s its biggest quarterly loss in four years.
If it doesn t rebound in the next three months, the fund will
have its first down year since the financial crisis in 2008.
The best-performing US stock fund last quarter was the
Polen Growth fund. It returned less than one per cent.
--- Popularity doesn't
always translate into returns
One of the hottest areas for investors has been foreign stock
Europe and Japan are earlier in their economic recoveries
than the United States, which means their central banks are
pushing stimulus while the Federal Reserve moves in the oppo-
site direction. That, plus cheaper valuations abroad, led investors
to pour nearly US$210 billion into foreign stock mutual funds
and exchange-traded funds in the 12 months through August.
They pulled more than US$7 billion out of US stock funds
over the same time.
After plowing that much in, investors were rewarded with
losses from nearly all foreign stock funds last quarter. All but
four of the 1,154 dropped last quarter.
The sharpest losses came from funds that focus on stocks
from emerging markets, which have a long history of big
swings. Latin American stock funds tumbled an average of
21.4 per cent, while Chinese stock funds lost 20.1 per cent.
China s economic growth is in the midst of a sharp slowdown,
which is pulling down prices for the commodities that Latin
American companies produce.
--- Bond funds offered
Many bond funds held their own, as they re expected to
during down markets for stocks. Interestingly, the funds
investors had been most fearful of did best: longer-term bond
When interest rates rise, bond prices fall because their yields
look less attractive. Longer-term bond prices are particularly
sensitive to rate changes because they lock investors into fixed
rates of return for longer.
That s why many investors have been shifting in recent
years from long- and intermediate-term bond funds to short-
Last quarter, short-term bond funds had modest losses,
while longer-term funds had modest returns. Short-term bond
funds lost an average of 0.2 per cent, intermediate-term bond
funds returned 0.3 percent and long-term bond funds gained
1.7 per cent.
That s in part because the yield for the one-year Treasury
bill rose last quarter, while yields for 10- and 30-year Treasurys
fell. It s a phenomenon that bond traders call a "flattening
yield curve," and it s one that some expect to continue.
Just don t expect bond funds to offer as much protection
as they did in prior downturns. Because yields are lower, bond
funds are producing less income than in years past.
For years, healthcare stock funds were some of the top-
performing investments. That s because biotechnology and
other health care stocks were offering prospects for strong
revenue growth in a global economy that was notably short
That run ended last quarter, and a single tweet had a lot
do with it. Presidential candidate Hillary Rodham Clinton
went on Twitter last month to criticise "price gouging" by
drugmakers, which raised worries that increased regulation
could pull down profits for the industry.
Healthcare stock funds lost an average of 13.7 per cent last
quarter. They have returned between 21 per cent and 48 per
cent annually over the last three years. AP's Stan Choe
Many losers, few winners
3Q mutual fund review
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