Last year was "a really strong year," said Russel Kinnel, director of mutual fund research at Morningstar. "The typical domestic stock fund was up 15% and the typical foreign fund was up 18%. Taxable bond funds were up 8% and municipals were up 7%. There were a lot of gloom-and-doom scenarios out there, but nearly everything did well. Europe came back strongly, and financials and health care did very well. It was another great example of how reality differs from perception."
Overall, the best-performing U.S. equity funds for the same three-month period were dominated by a focus on foreign and mid-cap opportunities: GMO Flexible Equities III (GFEFX), which invests in Japanese stocks, led the pack with a 21.85% return, followed by Fidelity Select Communications Equipment (FSDCX), up 19.46%; Legg Mason Capital Management Opportunity C (LMOPX), a mid-cap value fund that rose 19.44%; and Oakmark International I (OAKIX), a blend of large-cap foreign stocks, up 19.17%.
Of the 20 largest equity funds Morningstar tracks, Dodge & Cox International Stock (DODFX) generated the highest return for the three months ended Jan. 31, at 12.77%. Six other funds in this group also produced three-month returns over 9%: Vanguard Primecap (VPMCX), up 10.58%; Harbor International Instl (HAINX), up 10.41%; Dodge & Cox Stock (DODGX), 9.85%; Fidelity Low-Priced Stock (FLPSX), 9.53%; American Funds EuroPacific (AEPGX), 9.53%: and American Funds New Perspective A (ANWPX), 9.32%.
Precious metals funds reversed course dramatically after outsize gains three months ago; this time they included the 17 worst-performing equity funds. Worst of the worst were Van Eck International Investors Gold A (INIVX) and Oppenheimer Gold & Special Minerals A (OPGSX), which left investors 20.24% and 20.09% poorer, respectively.
Why the turnaround? Kinnel points to the perception-versus-reality scenario: "If gold is a bet on instability, then [gold funds tumble] when you have actual stability. ... In addition, gold is a very quirky investment."
The largest U.S. fixed-income funds had decidedly mixed results. Only six of the top 20 showed three-month returns of more than 1%, led by PIMCO Income A (PONAX) with a 4.87% gain and American Funds American High Income at 3.69% (AHITX). The other 14 funds all registered returns ranging as low as -0.79%.
Not surprisingly, the best-performing U.S. fixed-income funds were dominated by high-yield bond funds; long-term government bond funds were the worst performers. Three fixed-income funds had returns of more than 6% in the three months ended Jan.√Ę‚‚¨‚Äį31: Third Avenue Focused Credit Institutional (TFCIX) at 7.65%, JHFunds2 High Income NAV (JHAQX) at 6.67% and JHancock High-Yield B (TSHYX) at 6.15%.
Conversely, three long government bond funds had losses of greater than 6%: PIMCO Extended Duration Institutional (PEDIX) at -6.79%, Vanguard Extended Duration Treasury Index (VEDTX) at -6.66% and Rydex Govt. Long Bond (RYGBX) at -6.21%.
Looking ahead, Kinnel warns investors to rein in their expectations for the rest of 2013 after a stellar 2012: "You usually don't get double-digit returns every year." And doubts still remain about the world's major economies, he says. "That's worth watching closely."
But Kinnel also points out that corporate balance sheets have been strong and sees "room for dividends to grow" as well as continued potential for growth in Europe and Japan.
Charles Paikertis a New York financial writer.