In 1Q, foreign markets top domestic
NEW YORK — Anyone with an American-only 401(k) account missed out in the first quarter.
Funds that own stocks from Latin America, Asia and other foreign markets were some of the best performers during the first three months of the year. Hundreds had returns that were more than double those of the most popular U.S. stock funds, which were no slouches themselves. The largest U.S. stock fund had one of its best
quarterly performances in years.
It was all part of a strong start to the year for funds in general. Not only did stock funds of all types power higher, so did bond funds. Just over 93 percent of all the funds tracked by Morningstar had positive returns in the first quarter, as of Wednesday.
Fortunately, more investors seem to have taken advantage. Money poured into stock funds in the final months of 2016, mostly focused on the U.S. market due to excitement that a Republican-led Washington would usher in business-friendly policies.
Here’s a look at the trends that helped shape the quarter for mutual funds and exchangetraded funds. All of the return figures are through Wednesday.
For years, foreign stock funds did nothing but frustrate. Every peek higher would inevitably give way to another tumble, and the largest foreign-stock fund returned less than 1 percent annualized for the decade through 2016. What made the ride even more frustrating was that U.S. stocks nearly doubled over the same time, after including dividends.
Even with the mediocre performance, many investors continued to buy foreign stocks, looking for ways to diversify their portfolios. Yes, U.S. stocks had been on top for a long time, but they likely couldn’t stay that way forever. And foreign stocks were looking cheaper than their U.S. counterparts by several measures, following the split in performance.
That patience was rewarded in the first quarter, and Vanguard’s Total International Stock Index fund returned 9.2 percent for its best quarter in nearly four years.
Returns were even bigger for the types of funds that have been the most frustrating recently: those that invest in emerging markets.
The dollar’s falling value in the first quarter helped, because it meant returns denominated in South Korean won or Mexican pesos were worth more in dollars. The MSCI Emerging Markets index returned 8.8 percent in their local currencies, but 13 percent in dollar terms.