superstar equities in the technology and financial sectors powered double-digit positive returns for mutual funds in the first quarter, a period when almost every outcome reflected positive investor attitudes. Among specific sectors, science and tech funds, as a single sector, led the pack with average returns of 20.3%. The story was the same across the world, as global science and tech funds averaged 19 gains. Financial services was another big winner, up 18%; and consumer services funds advanced 17%, according to Lipper.
For a long time, investors had put investing in tech companies on the back burner. During an eight-year lull, many companies made their operations more efficient and introduced new products, says Tom Roseen, head of research services at Lipper.
"When I look at the month [of March], or the quarter, growth prevailed," Roseen says. Those double- digit returns were a welcome positive start to the year, but the consistency of positive returns throughout the first quarter is what really impressed investors, Roseen says. What's m ore, large tech companies either began paying out special dividends and initiating regular quarterly dividends, or considering it, he says.
"It was not just Apple," Roseen says. "That was just the icing on the cake." SkyWorks Solutions, which makes products for the cellphone and analog semiconductor industries, is mulling a dividend program.
Growth strategies of every description were investors' favorites during the quarter. Large-cap growth funds gained 16.2%, multicap growth funds were up 16%, mid-cap growth funds pushed ahead 15% and small-cap growth funds added 14.2%. "This is the first quarter in four quarters that we've seen growth-oriented funds lead the pack," Roseen says.
Consumer confidence also played a substantial role in positive returns among mutual fund sectors as the consumer services sector posted positive returns of 17%, according to Lipper. The sector includes hotel operators, restaurants and retailers.
TROUBLE WITH COMMODITIES
Investor enthusiasm was not universal, even though the S&P 500 was up 12% in the period. Commodities were down 2%; precious metals were off 1.72%; and energy funds dipped 1%. Roseen attributes much of the pullback in commodity and precious metals performance to slowing economic growth in China and a retreat in gold prices. Gold dipped to about $1,660 in mid-April from nearly $1,800 in late February.
Although investors put tangible confidence in the improving economy, they still poured money into equity-income funds. Such funds took in $7.8 billion in net asset flows. Fixed-income funds also reaped big numbers. Taxable bond funds overall took in about $76 billion, while municipal bond funds took in $13.6 billion in net assets.
"People are willing to take lower returns in the fixed-income markets," Roseen notes. "They had been beaten silly in 2008 and are just are not willing to take that chance anymore. And there is still a chance that bond funds could have an increase in interest rates."
Donna Mitchell is a senior editor of Financial Planning.