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Portfolio > Mutual Funds > Bond Funds

Investors Still Favor Equity, Taxable Bond Funds: Lipper

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Despite a noticeable uptick in the bumpiness of the equity markets, investors added nearly $9 billion to stock funds recently while moving funds out of U.S. Treasuries, according to Lipper data for the week ending April 9. A week earlier, U.S. investors put close to $5.5 billion into stock funds, as was as almost $4 billion into taxable bond products.

In early April, when market volatility rose, investors chose to take more than $225 million out of commodities and precious-metals funds. They also withdrew more than $11 billion from money markets. At the same time, as issues plagued Ukraine and Russia, emerging-market funds drew over $2.2 billion in inflows.

Judging from such behavior, investors seemed confident the trends of fund performance in the first quarter of 2014 would continue. During the period, equity funds were just able to post their seventh consecutive quarter of positive returns.

Q1 Performance

They improved 1.47% on average, with sector-equity funds rising 4.05%, according to Lipper. U.S. diversified-equity funds increased 1.33%, while world-equity funds squeezed out an improvement of 0.40%).

The strongest performers were commodities-agriculture funds (16.15%) and precious-metals equity funds (12.21%).

Funds that weakened most in the period included dedicated short-bias funds (-4.56%), Japanese funds (-4.45%) and China region funds (-4.40%).

After a strong run-up in 2013, especially in the fourth quarter, investors “cautiously continued to bid up the market in first quarter 2014,” says Tom Roseen, head of research services for Denver-based Lipper.

“While investors began to take some of their hard-won profits off the table during first quarter 2014—adding volatility to the market, they continued to inject net new money into the fund industry … to the tune of $41.5 billion,” Roseen explained in his latest quarterly report.

Investors were “forced to weigh the conflicting economic news,” he adds. “While much of the news showed an economic softening attributed to the strong winter storms in the U.S. this year, others showed a picture of a ‘plow–horse’ economy, continuing to amble along.”

During Q1, 78 of Lipper’s 95 equity and mixed-equity fund classifications posted positive returns. The period saw the dollar rise modestly against the euro, though it declined against the pound and the yen. Commodity prices improved, with gold rising about 7% to end the quarter at $1,283.40 an ounce.

Bond Business

Municipal bonds “turned a corner as buyers came back to the asset class,” says Jeff Tjornehoj, head of Lipper Americas Research.

Lipper’s high-yield muni debt funds group, for instance, posted returns of 5.25% to become Q1’s best-performing bond group.

“Munis would not have risen so high if Treasuries hadn’t rallied. Yields on the 10-year note settled down from  3.04% on Dec. 31, 2013, to 2.73% on March 31, 2014, to help general U.S. Treasury funds gain 3.63% for the quarter,” Tjornehoj expained.

High-yield funds improved 2.61%, putting their performance below that of investment-grade returns but slightly ahead of international income funds (2.32%).

Emerging-markets hard currency debt funds gained 2.44% during the period.

Overall, bond funds “started the year with a bang and helped investors put a disappointing 2013 behind them,” the Lipper fixed-income expert shared.

“The market’s most widely watched barometer, the Barclays Aggregate Index, gained 1.84% for Q1’14, after losing 2% for 2013. Concern early in the quarter about a slowing U.S. economy, along with a flight to quality in the face of emerging-market volatility, helped drive yields lower on U.S. Treasuries,” added Tjornehoj. “The Barclays U.S. Three-Year Government Bond Index ended the quarter up 0.14%.”


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