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Portfolio > Mutual Funds > Bond Funds

The Promise of March?

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Performance of the stock market along with stock and bond mutual funds is on the upswing. As Ron Surz, president of PPCA Inc. in San Clemente, California, writes in his most recent newsletter on stock market performance, the stock market experienced only a 10% loss in the first quarter of 2009 compared to 20% plus losses in the fourth quarter of 2008. The “really good news,” however, Surz writes, came in the last month of the quarter, “when U.S. markets rallied 9% and foreign markets returned 7.5%, including a 2% positive currency effect.”

Taking a look at the most recent numbers released on April 14 by mutual fund research firm Strategic Insight, as investor sentiment improved from the end of last year, “U.S. stock and bond mutual fund investors modestly allocated their positions during the first quarter of 2009, with bond fund inflows nearly matching stock fund outflows.” Those figures, Strategic Insight says, “were a stark improvement from the fourth quarter of 2008, when stock and bond mutual funds experienced aggregate net redemptions well over $100 billion.”

According to estimates from Strategic Insight’s Simfund database, U.S. bond funds were the brightest spot of the $8.4 trillion US mutual fund industry in the first quarter, taking in net inflows of $50 billion. “Those inflows included $19 billion in net inflows in March,” the research firm continues. “Both taxable and tax-free bond funds saw net inflows, with particularly strong inflows to global bond and high-yield corporate bond funds. The first quarter’s net inflows contrast with net redemption of over $60 billion from bond funds in last year’s fourth quarter.”

While market volatility continues to abound in the U.S., Surz notes that some regions outside the U.S. actually delivered positive returns in the first quarter of 2009, though every U.S. style lost ground in the first quarter. “Mid-cap growth defended best, losing only 5%, while large and small value companies suffered most, losing 13%. Overall, growth companies lost least, which is somewhat of a surprise in a declining market,” he says.

Surz notes in his newsletter, however, that Asia (excluding Japan) and Latin America returned 4.7% and 4%, respectively, in the first quarter. “Overall, the total foreign market lost less than the U.S., declining only 8% in the quarter. However, the popular EAFE index lost more than the U.S., declining 14%, due to its concentration in Japan and Europe, the worst performing regions in the quarter.”


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