Financial Planning - November 2012

D ATA

Strength Across the Board
Funds specializing in gold and other precious metals glittered in the third quarter,
but many other stock and bond categories also performed exceptionally well.
By Laton McCartney

The world of investing looks much brighter than it did a mere three months ago, and third-quarter mutual fund returns reflect that. “The market today is awfully strong across the board,” says Russel Kinnel, director of mutual fund research at Morningstar.

For the most part, both U.S. and European equity funds registered sharp upticks, Kinnel notes. “In addition,” he adds, “bonds and munis have done pretty well.” About the only investment category that didn’t fare well was long-term government funds.

Of the 20 largest equity funds Morningstar tracks, Dodge & Cox Stock generated the highest return, 8.03%, for the third quarter and a stellar one-year return of 31.89%. Five other funds in this group produced quarterly returns of more than 7%: Dodge & Cox International Stock, up 7.41%; American Funds Growth Fund of America, 7.36%; Fidelity Growth Company, 7.3%; American Funds EuroPacific Growth, 7.24%; and Oppenheimer Developing Markets, 7.11%.

At the other end of the spectrum, real estate and Japanese funds were heavily represented among the worst-performing equity funds. Five of the 10 funds with the biggest declines in the quarter were Japanese stock funds, headed by GMO Flexible Equities III, which slipped 4.12%. Analysts cite long-term currency concerns as one of the factors behind this downturn.

After a torrid recent stretch, some of the real estate vehicles apparently were coasting during the third quarter. The worst return among real estate funds was turned in by CGM Realty, with a quarterly decline of 1.84%. Overall, the worst performance of the quarter among equity issues, a drop of 5.93%, was turned in by Fidelity Select Transportation, a decline that Morningstar in part attributes to disruptive outflows.

Led by GMO Emerging Country Debt III, up 10.29% for the quarter,
seven of the top-performing fixed-income funds were emerging mar-
ket vehicles. Hampered by the Fed’s pledge to keep interest rates low
for the next few years, U.S.-based fixed-income funds registered nega-
tive numbers, with long-term government-bond
funds like PIMCO Extended Duration Treasury
(down 1.27%) and Vanguard Extended Duration
Treasury (down 0.72%) taking the biggest hits.

Five of the 10 funds with the biggest declines in the third quarter were Japanese stock funds. Analysts cite long-term currency concerns as one of the factors.