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Portfolio > Mutual Funds > Equity Funds

Mixed Q3 News for Equities, Bonds

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Long-term mutual funds had $2.5 billion of inflows in September, according to Morningstar, as international equities attracted investors. On the downside, municipal-bond funds experienced their seventh straight month of out flows, 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 of outflows. 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,” explained Michael Rawson, CFA, in a report. “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 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 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.”

Overall, equity funds post their fifth-consecutive quarter of positive returns, according to data released by Lipper. 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 YTD. The fund had a return of minus 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 Lipper’s 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 minus 0.83% on average for Q3.”


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