Nearly every type of fund rose last quarter, whether stocks or bonds, U.S. or foreign.
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 nearly universal climb for funds means many retirement accounts and other portfolios are the largest they’ve ever been. The average 401(k) balance already had come into the second quarter at a record level, according to Fidelity.
The good times, though, also 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.
For now, though, investors have been basking in the upside. Corporate profits are back on the upswing, which drove stock prices higher around the world, and continued low interest rates helped push bond funds.
The largest mutual fund by assets, and one that’s 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 for the three months through Thursday.
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 Thursday:
• The economy is still stuck in a lackluster pace, and its growth downshifted to 1.4 percent in the first three months of the year from 2.1 percent in last year’s final quarter. With strong growth scarce, investors bid up the stocks that are capable of providing it.
Technology companies are expected to have some of the strongest gains in earnings this year. Not only are businesses looking to use technology to improve their productivity, consumers are making it an increasing part of their daily lives. That helped earnings for tech companies in the S&P 500 soar more than 20 percent in the first quarter, and technology stock funds returned an average of 6.4 percent over the last three months.
• A resurgence for the euro and other currencies against the dollar last quarter likewise boosted foreign stocks. It meant each euro rise in a French stock’s price was worth more in dollar terms than before.
The most popular type of foreign stock fund, ones that hold a mix of large-cap stocks, returned an average of 5.9 percent. That’s more than double the 2.8 percent for their U.S. counterparts.
• Interest rates have 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. They’ve done better than that just four times in the last 17 quarters.
• Crude dropped below $43 per barrel in late June, down from roughly $50 a year ago.
Funds that own energy stocks lost an average of 12.1 percent, and ETFs that try to track the price of crude had similar drops.