Good times roll on for mutual fund investors

Widespread gains defy looming risks

NEW YORK — The good times keep rolling for fund investors.

Nearly every type of fund rose last quarter, whether focused on stocks or bonds, U.S. or foreign. Gains were so widespread that more than 7,000 of the roughly 7,600 funds that Morningstar tracks made money over the last three months.

The good times coincide with some increased risks. Stocks are near their most expensive level in years compared to their earnings. And bonds, which are supposed to be the safe part of a portfolio, are at risk for losses if interest rates rise, as many economists expect will happen eventually. Some analysts warn market swings will get bigger once central banks around the world follow the Federal Reserve’s lead and dial back on stimulus and raise interest rates.

For now, though, investors have been basking in the upside.

The largest mutual fund by assets — the centerpiece of many retirement portfolios — closed out its seventh straight quarter of gains. Vanguard’s Total Stock Market Index fund returned 3.1 percent.

Here’s a look at some of the trends that shaped the second quarter for fund investors. All performance figures are for the three months through last Thursday:

With the economy still stuck in a lackluster pace, growing 1.4 percent in the first three months of the year, investors bid up the stocks capable of providing growth.

Technology companies are expected to have some of the strongest earnings gains this year, and technology stock funds returned an average of 6.4 percent. Funds that focus on growth stocks more broadly were also strong. Large-cap growth stock funds returned 4.9 percent.

Foreign stocks’ struggles in recent years means stocks from Europe and emerging markets don’t look as expensive as their U.S. counterparts. Growth in corporate profits for companies around the world is also back on the rise.

The most popular type of foreign stock fund, ones that hold a mix of large-cap stocks, returned an average of 5.9 percent.

Coming into the year, the expectation was for bond funds to struggle badly. Interest rates were on the rise due to expectations of faster economic growth and inflation. And rising rates mean price drops for the bonds sitting in those portfolios.

But interest rates have instead sunk this year. That helped drive the most popular category of bond funds, ones that own intermediate-term bonds, to an average return of 1.6 percent over the last three months.

Among the relatively few losers last quarter were funds that focus on oil and other commodities. Funds that own energy stocks lost an average of 12.1 percent.