3 Best Performing Mutual Funds of 2014
This year has frequently seen international events dominating investor mood. Geopolitical tensions starting with the Russia-Ukraine crisis and the subsequent sanctions, and the ISIS and Middle East tensions have affected markets. Also, the Eurozone’s dismal economic growth has intensified recession fears. China too has reported dismal economic data.
The domestic events however showed strength. Economic data has mostly been on the positive side and there has been not many political instances affecting markets. Meanwhile, apprehensions about when the central bank will decide to hike rates have often made benchmarks volatile all through the year.
Like last year, benchmarks have often hit new highs this year. However, a recent selloff largely due to global economic growth concerns has somewhat offset the year-to-date gains. The S&P 500 (.INX) and the NASDAQ Composite (.IXIC) are up 3.1% and 2.4% so far this year. The Dow is down 0.2% year to date.
Among the S&P sectors, the Health Care SPDR (XLV) and Utilities SPDR (XLU) lead the race with year-to-date gains of 13.6% and 13.1%. The energy, industrial and consumer discretionary sectors are among the losers.
Looking at mutual funds, the latest figures from Investment Company Institute’s survey of the mutual fund industry suggest that the nation’s combined assets increased 2.5% to 15.84 trillion in August.
For investors keen to find out the best performing funds so far this year, we will pick 3 of them based on top Zacks rank, no sales load and low expense ratio. However before doing so, let’s look at the key developments of the year so far.
Mutual Fund Flow Trend
According to the latest numbers available from Thomson Reuters' Lipper service, into taxable bond funds attracted a record $12.7 billion for the week ending Oct 8. Of these, $7.9 billion were invested in taxable bond mutual funds and taxable bond exchange-traded funds attracted $4.8 billion.
Meanwhile, stock funds witnessed net outflows of $6.7 billion. However, stock mutual funds saw inflows of $330 million. High-yield bond funds witnessed its biggest inflow in seven weeks. It attracted $1.3 billion in new cash, a week after losing $2.3 in the prior week. Safe-haven Treasuries funds enjoyed the best inflow since February, adding $2.4 billion.
Fund flows into the high-yield bond funds have been choppy, marking record outflows and inflows through this year. Threat of an interest-rate rise and the winding down of monetary stimulus had left investors fleeing the sector till early August. The first week of August was noticeable with high yield funds witnessing a record $7.1 billion outflow. Bank of America Merrill Lynch said it was the biggest outflow ever in dollar terms. (Read: Flow Reverses for High-Yield Bond Funds: 3 Funds Worth Buying Now)
Bill Gross Effect
The inflow into taxable bond funds was driven by investors redirecting cash from PIMCO, a result of its co-founder Bill Gross quitting PIMCO to join Janus Capital Group (JNS). About $9.5 billion flowed into money market funds in the week ending Oct 8, mostly as investors moved out of PIMCO.
“Investors' choice was not to go back to Pimco… People are using money market funds to sit on the sidelines, whether it be because of volatility or to determine where they're going to go after the Gross era has ended,” said Tom Roseen, head of research services at Lipper. (Read: Why Bill Gross Left PIMCO to Join Janus: PIMCO to See Outflows?)
Bill Gross left his co-founded PIMCO after a four-decade stay and joined office this week to manage Janus Unconstrained Bond A (JUCAX), a fund having $12.9 million worth of assets under management in contrast to PIMCO’s $2 trillion of assets under management. The announcement was surprising for investors. (Read: Janus Funds to Gain as Bill Gross Takes Office)
Fed Will Take 'Considerable Time' to Hike Rates
Fed’s decision regarding the rate hike is among the most closely-followed event. Throughout this year, investors have been left guessing when the Federal Reserve wants to hike rates. In the latest major development, the central bank reassured investors that the low rate will continue for "a considerable time" after the bond repurchase program ends as the economy faces "significant underutilization of labor resources.”
Fed issued a statement separately that detailed plans about returning to normal rates, whenever that happens. The new technical plan on how it will raise short-term rates was nonetheless indicative of a possible rate hike in mid-2015.
This brought the bond funds into prominence. The U.S. Treasury bonds yields jumped to session highs, as traders priced in the possibility of higher rates in the future. While yields rise with rising interest rates, government bond prices generally trend lower. (Read: Bond Funds in Focus as Fed Takes 'Considerable Time' to Hike Rates)
Crude Prices Fall: Energy Funds in Focus
Another development that affected trading was the drop in energy prices. In September particularly, in addition to the oversupply factor, easing of geopolitical tensions and stronger dollar has led to decline in energy prices, dragging the energy sector lower. Also, domestic crude oil production is at its peak since the late 80’s. The energy sector bore the brunt and lost significant points. (Read: Crude Prices Fall to Intensify Energy Sector Concerns: 3 Funds to Sell)
Meanwhile, International Energy Agency recently said that demand growth in the second half of 2014 will slowdown to its lowest level in two and a half years. Separately, the US and European Union imposed new sanctions against Russia, which also includes restriction on Western companies to cooperate with Russian energy companies. The sanctions raised concerns about what happens to oil majors like Exxon Mobil Corp. (XOM), BP p.l.c. (BP), Royal Dutch Shell plc (RDS.A) and TOTAL S.A. (TOT) among others. (Read: What Happens to Exxon, BP if US, EU Ban Russian Oil Hunt)
Fund Category Performance
ICI revealed that long-term funds—equity, hybrid, and bond funds—attracted $7.60 billion in August, up from July’s inflow of $6.37 billion. However looking at the recent category performance data, Morningstar confirms that India equity funds have gained 34.4% year to date in the International Equity Funds category, Long Government funds scored gains of 19.3% in the Taxable Bond Funds category, Real Estate has jumped 15.1% in the Sector Equity Funds category and High Yield Municipal bond funds added 12.5% in the Municipal Bond Funds category.
India funds seem to have led the gains so far this year. Investing in India has been very profitable this year. The country’s key benchmarks, Sensex and Nifty, have touched all-time highs repeatedly this year. The upsurge is good news for funds that focuses on Indian companies. Some funds have already soared and certain top Zacks Rank funds are expected to continue the momentum. (Read: India Promises Steep Growth: 2 Fund Picks)
Among the sectors, real estate funds have led the year-to-date gains followed by healthcare. The following chart depicts the performance of the Sector Equity Funds.
Source: Morningstar
3 Best Performing Funds So Far in 2014
Here we will suggest funds that feature among the top gainers so far this year. They also carry Zacks Mutual Fund Rank #1 (Strong Buy). Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performances, but the likely future success of the fund.
These funds also have relatively low expense ratios and carry no sales charges. These funds have a minimum net asset of $50 million.
Fidelity Select Health Care Portfolio (FSPHX) seeks growth of capital. It invests the majority of its assets in companies whose principal operations include production, design and sales of health care related products or services. The fund focuses on acquiring common stocks and invests in companies all over the globe.
The fund has returned 21.6% year to date and boasts 1-year return of 41.7%. The fund carries no sales load and has an expense ratio of 0.76% as compared to category average of 1.39%.
Top holdings of the fund include Actavis plc (ACT), McKesson Corporation (MCK) and Shire PLC ADR (SHPG), which have gained 40.9%, 20.2% and 77.3%, respectively.
Fidelity Select Electronics Portfolio (FSELX) seeks growth of capital. The fund invests mostly in companies related to the designing, manufacturing and selling of electronic components. The fund invests in both domestic and non-US companies using fundamental analysis and also looking into market and economic conditions.
The fund has returned 18.3% year to date and boasts 1-year return of 30.4%. The fund carries no sales load and has an expense ratio of 0.79% as compared to category average of 1.49%.
Top holdings of the fund include Intel Corp (INTC), Broadcom Corp (BRCM) and Texas Instruments Inc (TXN). While Intel and Broadcom have gained 22.9% and 21.6% year to date, Texas Instruments has lost 2.7%.
JHFunds2 Real Estate Securities 1 (JIREX) seeks to provide long term growth of capital as well as current income. The fund invests a large proportion of its assets in equity securities issued by real estate investment trusts and companies. Not more than 10% of its assets may be invested in foreign firms.
The fund has returned 17.6% year to date and boasts 1-year return of 17.2%. The fund carries no sales load and has an expense ratio of 0.79% as compared to category average of 1.32%.
Top holdings of the fund include Simon Property Group Inc (SPG), HCP, Inc. (HCP) and Equity Residential (EQR), which have gained 10.7%, 15.4% and 25.5%, respectively.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank in our Mutual Fund Center.
Read the analyst report on FSPHX
Read the analyst report on FSELX
Read the analyst report on JIREX
Read the analyst report on XLV
Read the analyst report on XLU
Read the analyst report on JNS
Read the analyst report on BP
Read the analyst report on TOT
Read the analyst report on XOM
Read the analyst report on ACT
Read the analyst report on MCK
Read the analyst report on INTC
Read the analyst report on BRCM
Read the analyst report on TXN
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