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Bull Market Turns 6: Top Mutual Fund Gainers

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Just six years back, hardly anything was right about the economy. The much-cherished Lehman Brothers had collapsed and so did the housing market. General Motors was about to be bankrupt. More importantly, the recession had arrived in the U.S. On Mar 9, 2009, the Standard & Poor’s 500 (S&P 500) had hit a nadir of 676.53.

Trading at nearly 2.1K level now, the S&P 500 has been flirting with the all-time highs too often. The benchmarks index had hit record highs on several occasions in 2013 and 2014, continuing the momentum in 2015 as well. It’s a similar tale for fellow benchmarks Dow Jones Industrial Average and the Nasdaq Composite Index. The Nasdaq in fact achieved the 5K mark recently, a milestone that echoed the 2000’s dot-com boom.

The housing market has gathered enough strength from the lows of 2009, labor market looks strong with unemployment rate hitting six and a half year low in February, General Motors is very much back in business and Lehman Brothers emerged from bankruptcy in 2012. A crucial role, we believe, behind the success in these years have been the central bank’s three rounds of quantitative easing program.

The Bull Run has now spanned 6 years, and expectations of a seventh one are well alive. The six years of Bull Run was previously achieved only three other times since the World War II. This one in fact is touted to be one of the strongest in comparison to the 1949- 1956 and 1990-2000 period.

Gains have thus poured in for mutual fund investors too. Before identifying the best 6 gainers during this period, let’s look into a couple of key economic data.

GDP

The Real GDP had slumped for the first and second quarters of 2009, respectively. However, it was to be the recovery period since then. The bottom was reached in the second quarter. The National Bureau of Economic Research marks Dec 2007 as the beginning of the recession.

With the recovery process since then, real GDP has mostly gained. Annually, real GDP was always in the green since 2009. For 2010, 2011, 2012, 2013 and 2014, the economy grew at 2.5%, 1.6%, 2.3%, 2.2% and 2.4%.

According to latest data, the “second” estimate by the Bureau of Economic Analysis suggested that the fourth quarter 2014 output of goods and services increased at an annual rate of 2.2%.

Labor Market

With the recession, obviously millions of jobs were to be lost. The Department of Labor noted that about 8.7 million jobs were lost between Feb 2008 – Feb 2010. From 4.6% unemployment rate in Jan 2007, it had soared to 7.8% in Jan 2009 and then 9.8% in Jan 2010. In March and April that year, unemployment rate hit 9.9%, before starting to ease in the following years.

Now, the unemployment rate has dropped to 5.5%, its lowest level since early 2008. The year 2014 was the strongest for the labor market in the last 15 years in terms of new job additions.

Fed’s QE Program

The slide in unemployment to 5.5% has triggered market concerns that the US Federal Reserve will now move toward higher rates. This is because it has hit the upper bound of the 5.2%-5.5% range which the Fed believes signals full employment.

The US central bank had kept the rates at record low levels for a prolonged period to combat the economic recession. Lower rates reduce borrowing costs for households, corporate and financial institutions. This encourages borrowing and thereby economic activity.

The measure taken in 2008 reflected the central bank’s motive that it will “employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability”.

Moreover, the central bank carried three quantitative easing programs to spur the economy. The Fed announced in Oct 2014 the end of its bond-buying stimulus program. The quantitative easing program was started during the 2008 recession in order to stimulate jobs growth. During 2013, the third round of monetary stimulus plan announced the central bank would repurchase $85 billion worth of mortgage and treasury bonds. The central bank bought over $3 trillion in assets since the financial crisis through these QE programs.

However, it must be noted that the QE programs were one of the key factors driving markets up. Earnings growth and several improving economic activities have also aided the markets. Nonetheless, the role of the QE programs can never be denied. The QE programs have often been acknowledged to have provided a great impetus to the Bull Run. Since Mar 2009, the S&P 500, Dow and Nasdaq are now up by about 204%, 172% and 282%, respectively.

Top 20 Mutual Fund Gainers in Last 5 years

Below we present the 20 mutual fund gainers in the past 5 years. The following list is based on the total return over the five years and not on Zacks Mutual Fund Rank. However, the list excludes funds with net assets below $50 million and the inception date of these funds was before 2008. We have also focused on mutual funds that have a maximum initial investment within $5000. We have also avoided repeating the same fund having different classes.



The list clearly indicates the dominance of the healthcare funds. Of the top 10 gainers, 9 belong to the healthcare sector. This is justified given that the Healthcare sector is also the leading gainer in the last five years among the Sector Equity Funds. It has gained 22.4% (as of Mar 9, 2015), and is followed by 17.8% gain in Consumer cyclical, 15.6% in Industrials and 15% in Real Estate sector.

Among the top 10, funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) are ProFunds Biotechnology UltraSector Investor (BIPIX - Free Report) , Prudential Jennison Health Sciences A (PHLAX - Free Report) and T. Rowe Price Health Sciences (PRHSX - Free Report) . Meanwhile, Franklin Biotechnology Discovery A (FBDIX - Free Report) , Prudential Jennison Health Sciences B (PHLBX - Free Report) , VALIC Company I Health Sciences (VCHSX - Free Report) and Fidelity Select Health Care Portfolio (FSPHX - Free Report) also carry a favorable Zacks Mutual Fund Rank #2 (Buy).

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at www.zacks.com/funds/mutual-funds.



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