It’s been a tough three months for mutual funds.
“Wild market swings throughout first quarter 2008 played on investors’ psyches, and as a result, equity mutual funds posted their worst three-month returns in 23 quarters,” explains Tom Roseen, a senior research analyst for Lipper in Denver. “The average equity mutual fund declined 9.74 percent for the quarter ended March 31, 2008.”
Still, gold funds tweaked out gains of better than 5 percent, and world-income funds rose nearly 4 percent in the period. Short-bias funds showed the best returns; they rose close to 12 percent on average, according to Lipper.
“After several years of international stock out-performance, some domestic issues — at least for the first three months of 2008 — slightly outpaced their overseas brethren,” shares Roseen. For instance, “The Dow Jones Industrial Average (down 7.55 percent year to date) mitigated losses better than its domestic and international counterparts,” he reports.
Though crude-oil prices were near record highs, natural-resources funds “stumbled a bit for the quarter,” he adds, and declined 4.53 percent in the three months ended March 31. Real-estate funds, however, dropped just 1.18 percent.
Fund flows, naturally, reflected the above-mentioned trends in performance, according to fund research group EPFR Global of Cambridge, Mass. This dynamic worked to the benefit of money-market funds, which took in $17.2 billion during the fourth week of March as “the pain continued for most of the other major fund groups,” EPFR Global notes.
Equity funds, which had net inflows of close to $19 billion in Q107 and $50 billion in Q106, recorded outflows of nearly $100 billion during the first 13 weeks of 2008 “as a credit squeeze linked to the U.S. sub-prime debt mess weighed on investor confidence and global growth,” explains EPFR Global.
“Based on Q1 data, we’re on pace for money-market funds tracked weekly to take in $560 billion of inflows this year,” says EPFR Managing Director Brad Durham. “I don’t think it will come to that of course, but with the $240 billion of inflows into these funds last year, most of which came in the second half of the year, it’s clear there is a huge amount of cash on the sidelines to be deployed when global markets stabilize.”
In addition, investors have sought refuge in commodities as prices continue to test previous record highs, which also has benefited emerging-market bond funds, “especially those geared to local currencies rather than the slumping U.S. dollar,” the research firm reports.
“There are a few bullish signs buried in the Q108 flow data,” notes EPFR Global senior analyst Cameron Brandt. “Investors remain willing to buy into markets and regions that they see as either under-bought last year or oversold this year. Taiwan, Russia, Africa and the Middle East and financial plays fall into this category.” Russia and Taiwan benefited from elections, the research firm says.