Despite some sluggishness in June (the average equity fund declined 2.10%), the average equity fund remained in the black for Q2, returning 0.31% and producing a fourth consecutive quarter of plus-side returns. Concerns about global central-bank intervention increased volatility in the markets in the second quarter. Federal Reserve Chairman Ben Bernanke in his testimony in May raised fears that the U.S. central bank would begin tapering its purchases of mortgage-backed securities (the program contributing to the rally in stocks), sending both stocks and bonds on a rollercoaster ride. Unfortunately, many investors took a contrarian approach to investing, battering the markets after reports of good news and raising the markets on bad news. Although many stocks set new highs during the quarter, investors turned their attention to domestic, quasi-defensive, and out-of-favor issues.
REUTERS/Vivek Prakash
Despite the rally seen in Japan as a result of “Abenomics,” the global markets remained in a semi-funk during the quarter as investors pondered the news that the Eurozone remained bogged down in recession and that China’s purchasing managers’ index was at a nine-month low, signaling slowing growth in China. For the quarter only 38 of Lipper’s 90 equity and mixed-equity fund classifications posted positive returns.
Given the roiling in the gold-related classifications, it wasn’t surprising to see Sector Equity Funds (-2.80% for the quarter) at the bottom of the macro-classification pile, bettered somewhat by World Equity Funds (-2.20% for the quarter). As a result of the rapid increase in Treasury yields and a general decline in bond prices in June, mixed-asset fund investors might be surprised to see their funds suffered declines as well, shedding on average 0.95% of their Q1 ending value as the proportion of equity in the given glide paths wasn’t strong enough to outweigh the declines cause by investors’ fixed income allocation. For the second quarter in a row U.S. Diversified Equity Funds (+2.29%) was at the top of the podium as investors eyed attractive domestic issues.
Lipper’s leveraged and inverse-focused Commodities Specialty Funds (+7.38%) classification rose to the top of the leader board for the quarter, followed by Consumer Services Funds (+6.20%), Health/Biotechnology Funds (+4.97%), and Financial Services Funds (+4.93%). In a continuation of the last two quarters Dedicated Short-Bias Funds (-1.24%), select commodity fund classifications, and Precious Metals Equity Funds (-35.02%—the worst performer in the equity universe) weighed on the equity group’s return.
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