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Just over 93% of all the funds tracked by Morningstar had given positive returns in the first quarter. U.S. stock funds did well, while the largest among them posted the best quarterly performance in years. Investors also favored bond funds in the first three months of the year, even though gains were lower than those for stock funds.
Funds that own stocks from Latin America, Asia and other foreign markets were some of the best performers, with growth funds beating value funds in the quarter. Overall, it was a strong start to the year for funds.
US Stock Funds Rose 4.8% in Q1
It was quite a different story at the end of 2016 when money flowed into stock funds and out of bonds on bets that the Trump administration will boost the economy. The job market improved, optimism surged for shoppers and businessmen, while a rebound in corporate earnings helped push stock prices higher. In fact, the Dow Jones hit 21,000 in the first quarter, which resulted in the average diversified U.S. stock fund registering a healthy return of 4.8%. The largest U.S. stock fund, Vanguard Total Stock Market Index Investor (VTSMX - Free Report) , returned 5.6% in the quarter, its second best performance in the last three years.
However, the euphoria fizzled out after the healthcare setback in the first quarter. Investors are now treading cautiously, placing their bets on tried-and-true bond funds. An estimated $112 billion flowed into funds that invest in bonds in the quarter, in contrast to $34.5 billion that went to U.S. stock funds, according to Investment Company Institute (ICI) data. Among the bond funds those that focus on intermediate-maturity, investment-grade debt and the most common type of fixed-income funds, inched up 1% in the quarter.
Foreign Funds Lead the Way
For years, foreign stock funds have been generating upsetting returns for investors. The largest foreign stock fund on an annualized basis returned less than 1% for the decade through 2016. What made it even more disappointing is the fact that U.S. stock funds almost doubled over the same time period, including dividends. Largely foreign stock funds were drubbed by U.S. stock funds last year (by 10.8% to 0.7%).
The wait was finally over in the first quarter, with the Vanguard Total International Stock Index Fund (VTIAX - Free Report) returning 9.2% marking the best quarter in nearly four years. Returns were even higher for funds focused on emerging markets. According to ICI, estimated net inflow to foreign-stock funds were $47.9 billion in the quarter. The drop in the dollar’s value in the first quarter helped foreign funds as well.
Latin American funds were up 13.1%, as investors expected a major shift in trade policy post election. India funds gained 20.05%, the highest for any Lipper fund category during the quarter. China region funds were up almost 12%
Growth Funds Top Value Funds
It was also a good year for growth oriented funds. Such funds topped their value counterparts regardless of market valuations. More exposure to tech and biotech holdings did help growth funds. And why not? Healthcare funds gained 10.94% in the quarter, while technology funds did even better at 12.12%. Apart from healthcare and tech, sectors including utilities and consumer goods were up 6.4% and 7.24%, respectively.
Among U.S. diversified equity funds, growth funds returned 7.94% in the quarter, compared with 2.69% for value. Also, large-cap funds excelled, raking in a return of 6.32%, compared with 5.28% for mid-cap funds and 2.81% for small-cap funds. Among small-caps, growth funds led the way with 5.81%. On the other hand, small-cap value funds eked out a meager 0.09%.
Top 5 Mutual Funds of Q1
We have, thus, selected five mutual funds from the aforesaid categories that boast a Zacks Mutual Fund Rank #1 (Strong Buy) and have offered the best returns in the first quarter. They also offer a minimum initial investment within $5,000 and carry a low expense ratio. Investors can click here to see the complete list of Zacks #1 Rank Mutual Funds, their Zacks Rank and past performance.
Investors mostly rely on mutual funds as the backbone of their investment strategy. And why not? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Technology (FSPTX - Free Report) invests in common stocks. It normally invests a large portion of its assets in securities of companies principally engaged in offering, using, or developing products, processes, or services that will provide or will benefit significantly from technological advances and improvements.
FSPTX’s first-quarter return for this year is 17.4%. Annual expense ratio of 0.76% is lower than the category average of 1.45%. FSPTX’s performance when compared to funds in its category, as of the last filing, was in the top 11% in the past one year.
Franklin Biotechnology Discovery A (FBDIX - Free Report) invests the majority of its net assets in securities of biotechnology companies and discovery research firms. The fund predominantly invests in equity securities, primarily common stock.
FBDIX’s first-quarter return for this year is 12.8%. Annual expense ratio of 0.98% is lower than the category average of 1.33%. FBDIX’s performance when compared to funds in its category, as of the last filing, was in the top 7% in the past one year.
JPMorgan Small Cap Growth A (PGSGX - Free Report) invests a large portion of its assets in the securities of small capitalization companies. PGSGXseeks long-term capital growth primarily from a portfolio of equity securities of small-capitalization and emerging growth companies.
PGSGX’s first-quarter return for this year is 11.7%. Annual expense ratio of 1.25% is lower than the category average of 1.3%. PGSGX’s performance when compared to funds in its category, as of the last filing, was in the top 2% in the past one year.
DFA International Sustainability Core 1 (DFSPX - Free Report) invests a major portion of its net assets in equity securities. It may gain exposure to companies associated with approved markets by purchasing equity securities in the form of depositary receipts, which may be listed or traded outside the issuer's domicile country.
DFSPX’s first-quarter return for this year is 7.8%. Annual expense ratio of 0.44% is lower than the category average of 1.09%. DFSPX’s performance when compared to funds in its category, as of the last filing, was in the top 10% on a year-to-date basis.
MFS Emerging Markets Equity R4 (MEMHX - Free Report) invests a lion’s share of its net assets in equity securities of issuers that are tied economically to emerging market countries. Emerging market countries are countries whose financial and capital markets are in the development phase and are located in Latin America, Asia, Africa, the Middle East and primarily Eastern Europe.
MEMHX’s first-quarter return for this year is 11.4%. Annual expense ratio of 1.46% is lower than the category average of 1.47%. MEMHX’s performance when compared to funds in its category, as of the last filing, was in the top 13% in the past one year.
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5 Best Performing Mutual Funds of Q1
Just over 93% of all the funds tracked by Morningstar had given positive returns in the first quarter. U.S. stock funds did well, while the largest among them posted the best quarterly performance in years. Investors also favored bond funds in the first three months of the year, even though gains were lower than those for stock funds.
Funds that own stocks from Latin America, Asia and other foreign markets were some of the best performers, with growth funds beating value funds in the quarter. Overall, it was a strong start to the year for funds.
US Stock Funds Rose 4.8% in Q1
It was quite a different story at the end of 2016 when money flowed into stock funds and out of bonds on bets that the Trump administration will boost the economy. The job market improved, optimism surged for shoppers and businessmen, while a rebound in corporate earnings helped push stock prices higher. In fact, the Dow Jones hit 21,000 in the first quarter, which resulted in the average diversified U.S. stock fund registering a healthy return of 4.8%. The largest U.S. stock fund, Vanguard Total Stock Market Index Investor (VTSMX - Free Report) , returned 5.6% in the quarter, its second best performance in the last three years.
However, the euphoria fizzled out after the healthcare setback in the first quarter. Investors are now treading cautiously, placing their bets on tried-and-true bond funds. An estimated $112 billion flowed into funds that invest in bonds in the quarter, in contrast to $34.5 billion that went to U.S. stock funds, according to Investment Company Institute (ICI) data. Among the bond funds those that focus on intermediate-maturity, investment-grade debt and the most common type of fixed-income funds, inched up 1% in the quarter.
Foreign Funds Lead the Way
For years, foreign stock funds have been generating upsetting returns for investors. The largest foreign stock fund on an annualized basis returned less than 1% for the decade through 2016. What made it even more disappointing is the fact that U.S. stock funds almost doubled over the same time period, including dividends. Largely foreign stock funds were drubbed by U.S. stock funds last year (by 10.8% to 0.7%).
The wait was finally over in the first quarter, with the Vanguard Total International Stock Index Fund (VTIAX - Free Report) returning 9.2% marking the best quarter in nearly four years. Returns were even higher for funds focused on emerging markets. According to ICI, estimated net inflow to foreign-stock funds were $47.9 billion in the quarter. The drop in the dollar’s value in the first quarter helped foreign funds as well.
Latin American funds were up 13.1%, as investors expected a major shift in trade policy post election. India funds gained 20.05%, the highest for any Lipper fund category during the quarter. China region funds were up almost 12%
Growth Funds Top Value Funds
It was also a good year for growth oriented funds. Such funds topped their value counterparts regardless of market valuations. More exposure to tech and biotech holdings did help growth funds. And why not? Healthcare funds gained 10.94% in the quarter, while technology funds did even better at 12.12%. Apart from healthcare and tech, sectors including utilities and consumer goods were up 6.4% and 7.24%, respectively.
Among U.S. diversified equity funds, growth funds returned 7.94% in the quarter, compared with 2.69% for value. Also, large-cap funds excelled, raking in a return of 6.32%, compared with 5.28% for mid-cap funds and 2.81% for small-cap funds. Among small-caps, growth funds led the way with 5.81%. On the other hand, small-cap value funds eked out a meager 0.09%.
Top 5 Mutual Funds of Q1
We have, thus, selected five mutual funds from the aforesaid categories that boast a Zacks Mutual Fund Rank #1 (Strong Buy) and have offered the best returns in the first quarter. They also offer a minimum initial investment within $5,000 and carry a low expense ratio. Investors can click here to see the complete list of Zacks #1 Rank Mutual Funds, their Zacks Rank and past performance.
Investors mostly rely on mutual funds as the backbone of their investment strategy. And why not? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Technology (FSPTX - Free Report) invests in common stocks. It normally invests a large portion of its assets in securities of companies principally engaged in offering, using, or developing products, processes, or services that will provide or will benefit significantly from technological advances and improvements.
FSPTX’s first-quarter return for this year is 17.4%. Annual expense ratio of 0.76% is lower than the category average of 1.45%. FSPTX’s performance when compared to funds in its category, as of the last filing, was in the top 11% in the past one year.
Franklin Biotechnology Discovery A (FBDIX - Free Report) invests the majority of its net assets in securities of biotechnology companies and discovery research firms. The fund predominantly invests in equity securities, primarily common stock.
FBDIX’s first-quarter return for this year is 12.8%. Annual expense ratio of 0.98% is lower than the category average of 1.33%. FBDIX’s performance when compared to funds in its category, as of the last filing, was in the top 7% in the past one year.
JPMorgan Small Cap Growth A (PGSGX - Free Report) invests a large portion of its assets in the securities of small capitalization companies. PGSGXseeks long-term capital growth primarily from a portfolio of equity securities of small-capitalization and emerging growth companies.
PGSGX’s first-quarter return for this year is 11.7%. Annual expense ratio of 1.25% is lower than the category average of 1.3%. PGSGX’s performance when compared to funds in its category, as of the last filing, was in the top 2% in the past one year.
DFA International Sustainability Core 1 (DFSPX - Free Report) invests a major portion of its net assets in equity securities. It may gain exposure to companies associated with approved markets by purchasing equity securities in the form of depositary receipts, which may be listed or traded outside the issuer's domicile country.
DFSPX’s first-quarter return for this year is 7.8%. Annual expense ratio of 0.44% is lower than the category average of 1.09%. DFSPX’s performance when compared to funds in its category, as of the last filing, was in the top 10% on a year-to-date basis.
MFS Emerging Markets Equity R4 (MEMHX - Free Report) invests a lion’s share of its net assets in equity securities of issuers that are tied economically to emerging market countries. Emerging market countries are countries whose financial and capital markets are in the development phase and are located in Latin America, Asia, Africa, the Middle East and primarily Eastern Europe.
MEMHX’s first-quarter return for this year is 11.4%. Annual expense ratio of 1.46% is lower than the category average of 1.47%. MEMHX’s performance when compared to funds in its category, as of the last filing, was in the top 13% in the past one year.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>