From the August 2014 issue of Research Magazine • Subscribe!

Equity Funds Up (Again) in Q2’14

“Despite the old adage of ‘sell in May and go away,’ investors kept the pedal to the metal in second quarter 2014, pushing the average equity mutual fund three-month return to 4.04%, with equity funds posting their eighth consecutive quarter of plus-side returns,” explained Tom Roseen, head of research services for Lipper in Denver.

The second quarter, though, was a bumpy one, though, as violence in Iraq upset investors and pushed oil and gold prices higher. Still, by the end of June, dovish comments by the Fed and other factors propelled the S&P 500 to its 22nd record close for the year and the Nasdaq to its strongest finish in 14 years.

Equity funds had their eighth-consecutive quarter of positive performance, with average returns of 4.04% in the period. Sector-equity funds outperformed the group, with a 5.62% gain. Meanwhile, world equity funds rose 4.46%, U.S.-diversified equity funds improved 3.42%, and mixed- asset funds ticked up 3.32%.

As for losing groups, dedicated short-bias funds dropped 9.57%, commodities-agriculture funds fell 5.72%, commodities-specialty funds dipped 0.60%, and alternative-equity/market-neutral funds declined 0.11%. India-region funds topped the equity charts, rising 18.26%.

Fund flows in the quarter, though, were negative as investors took about $2.7 billion out of their conventional funds, excluding ETFs. However, they “padded the coffers” of some fund categories on a net basis, Roseen says, and put $26.6 billion into conventional equity funds, $33 billion in taxable fixed-income funds and $5.4 billion in municipal bond funds.

Investors had “a clear preference for developed-market funds ($14.0 billion) over emerging-market funds ($4.8 billion),” according to Lipper's latest research. The major net redemptions made by investors were in money-market funds (–$67.7 billion).

Lipper notes the major U.S. indices “showed strong Q2 performance.” The NYSE Amex Price Only Composite rose 8.41%, followed by the Nasdaq Price Only Composite (4.98%), the S&P 500 Price Only Composite (4.69%) and the Dow Jones Industrial Average (2.24%).

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