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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