October 14, 2013

International Stocks Win, Munis Lose in September: Morningstar

Equity funds improved 7% in Q3, according to Lipper’s latest report

Long-term mutual funds had $2.5 billion of inflows in September, Morningstar reported Friday, as international equities attracted investors.

On the downside, municipal-bond funds experienced their seventh straight month of outflows, and taxable-bond funds had their fourth straight month of redemptions.

Sentiment also turned against U.S. equity funds, which had their largest monthly outflow so far in 2012: $3.3 billion. But this level of redemptions pales in comparison with $9.1 billion in average monthly outflows in 2012, the Chicago-based research group reports.

In the first nine months of 2013, international equity mutual funds have brought in $103 billion. “While alternative mutual funds had the fastest growth relative to assets, the growth is largely driven by just one fund,” said the Morningstar report, written by Michael Rawson. “For the quarter, money-market funds brought in $92.3 billion compared with $11.1 for long-term mutual funds and $53.2 billion for exchange-traded funds.”

Global Horizons

The foreign large-blend, world stock and diversified emerging-markets categories had strong flows of roughly $2.4 billion, $1.9 billion and $1.1 billion, respectively.

Gold-rated Oakmark International (OAKIX) led all international-equity funds, with inflows of $1.4 billion in September.

Unfortunately for investors, the fund closed on Oct. 4 due to the tremendous growth of the past 12 months: $24.2 billion in assets vs. $9.5 billion a year ago. Its 40.79% return in last year puts it in the top 1 percentile of the category, according to Morningstar.

“Flows to international funds have been fairly balanced between active and passive. Combing mutual fund and ETF flows, actively managed funds have had inflows of $76.4 billion compared with $62.0 for passive,” Rawson noted. “Within the U.S. equity category, active has seen outflows of $16.5 billion compared with $100.1 billion of inflows for passive.”

Despite posting better returns since rates began to rise in May, large-growth funds have suffered heavier outflows than large-value funds, the research group says, including the silver-rated Fidelity Contrafund (FCNTX), bronze-rated T. Rowe Price Growth Stock Fund (PRGFX) and neutral-rated Invesco American Franchise (VAFAX).

Still, the Delaware U.S. Growth Fund (DEUIX) bucked the trend with inflows of $462 million.

Within the alternative category group, the bronze-rated MainStay Marketfield (MFLDX) brought in $1.7 billion for the month and $10.2 billion in the first nine months of 2013. This long-short equity fund has produced returns of 13.17% annualized over the past three years through Sept. 30 vs. 16.27% for the S&P 500 and with less volatility. Its assets are up nearly five-fold from 12 months ago, Morningstar reports.

Equity funds post their fifth consecutive quarter of positive returns, according to data released by Lipper in early October. Their average returns were 7.32%, with world-equity funds improving 8.46% in the period.

U.S. diversified-equity funds ticked up 7.31%, sector-equity funds 5.28% and mixed-asset funds 4.03%. On the downside, dedicated short-bias funds weakened 12.83%, India funds 7.79% and real-estate funds 2.64%.

Fixed Income

Investors yanked $12.2 billion from intermediate-term bond funds in September, according to Morningstar.

“The 10-year Treasury rate marched higher throughout most of the third quarter before falling slightly following the Fed's surprise decision to delay the removal of stimulus, ending September at 2.62%,” explained Rawson. “That is up from 2.48% at the end of the June, a month in which rates spiked and investors pulled a record $24.4 billion from the intermediate-term bond category.”

Gold-rated PIMCO Total Return (PTTRX) shed $5.4 billion in September and $28.1 billion year to date. The fund had returns of 1.77% in September and -1.89% in the first nine months of 2013.

Neutral-rated DoubleLine Total Return (DBLTX) produced a 0.29% gain year to date, but had outflows of $2.1 billion in September.

Since March, municipal-bond funds have lost $48 billion to outflows, and their returns have fallen 2.55% in the first three quarters of 2013.

The silver-rated Vanguard Intermediate-Term Tax-Exempt (VWITX) had $525 million of outflows in September, while the JPMorgan Intermediate Tax Free Bond Fund (JITIX) lost $449 million.

On the upside, the bronze-rated Oppenheimer Senior Floating Rate Fund (OOSIX) drew $1.3 billion in assets last month, while the neutral-rated Goldman Sachs Strategic Income Fund (GSZIX) brought in $1.9 billion and the bronze-rated BlackRock High Yield Bond Portfolio (BHYIX) $567 million.

For the quarter, high-yield funds had the highest average returns, up 2.21%, Lipper reports, while the worst-performing group was high-yield muni- debt funds, which lost 2.46%.

The only group with a positive ‘Q2 return “stayed on track and produced a return of 1.23% for Q3,” shared Jeff Jornehoj. “Municipal debt funds took a beating for the first two-thirds of the quarter before a late rally lifted prices; they finished with a return of -0.83% on average for Q3.”

---

Check out these related stories on ThinkAdvisor:

Read the full Morningstar report.

Page 2 of 2
Single page view Reprints Discuss this story
This is where the comments go.