26 September 2020

Stock Funds in the Quarter

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Funds investing in growth, science and tech stocks did the best. But bond funds are also up for the year and money is flowing there.

When is a 23.5% rally in your stock fund not a cause to celebrate too hard?

Right now might be a rare case. Because even though the average U.S.-stock fund rallied by that much in the second quarter, according to Refinitiv Lipper data, it was only a partial rebound from the horrendous first quarter. In that first quarter, as the coronavirus lockdowns weighed on the economy and the stock market, the average fund was down 24.6%.

The second quarter began just as badly, before federal stimulus and the easing of many lockdowns started the snapback. The result of the two quarters of head-spinning market moves: U.S.-stock funds are down 7.0% for the year to date.

Still, many investors, voting with their money, are hedging their bets—selling stock funds and buying bond funds.

Investors withdrew a net $28.3 billion from U.S.-stock mutual funds and exchange-traded funds and $61.8 billion from international-stock funds in the quarter, based on Investment Company Institute estimates. They invested a net $183.5 billion in bond funds.

 “For fund investors, they’ve been through a lot already. They’ve been through half a year and it probably feels like seven years,” says Matthew Benkendorf, chief investment officer of Vontobel Asset Management’s Quality Growth unit in Fort Lauderdale, Fla. “The good thing is they might be through the worst part of volatility.” 

Brad Neuman, director of market strategy at investment manager Alger, in New York, says the U.S. economy is recovering. But “the spread between winners and losers in the economy is higher than potentially it’s ever been,” he says.

The winners in the market, he notes, have been growth stocks (companies that promise profit growth), which have drubbed value stocks, as well as technology as a sector. Large-cap growth funds were up 27.8% in the quarter; science and technology funds were up 33.1%.

International-stock funds rose 18.1% in the quarter, to shave their year-to-date decline to 9.2%. Mr. Benkendorf says emerging markets might be one area that is “still a bit of free lunch” for investors, with its reasonable valuations.

Bond funds rose in the quarter. Funds tied to intermediate-maturity, investment-grade debt (the most common type of fixed-income fund) rose 5.0% for the quarter, and are up 5.4% for the year to date.

Mr. Power is a Wall Street Journal news editor in South Brunswick, N.J. Email him at william.power@wsj.com.

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