The second quarter was not kind to the markets or to mutual funds, with the S&P 500 off by close to 3 percent on a total-return basis. The average balanced mutual fund fell by roughly 2.5 percent, according to Morningstar.
This could mean further rough patches and certainly more big swings in the near future, experts say.
"Even though stocks rebounded somewhat from their quarterly lows, the stock market was very much in the red for the quarter. What happens next will likely be driven by the same questions that dominated the landscape this quarter," said analyst Jeremy Glaser with Morningstar in a preliminary Q2 report. "Investors should continue to be prepared for more volatility and surprises in the coming months."
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How did other categories of mutual funds do in Q2? U.S. diversified-equity funds fell 4.86 percent for the three months ending June 30, the fund-research firm said in preliminary data shared on Thursday. That's about the same decline as the NASDAQ Composite, which was off about 4.75 percent on a total-return basis.
"At the end of the first-quarter of this year, we remarked that the market was still willing to shrug off the storm clouds over Europe and the rocky recovery in the United States to post impressive gains. Three months later, the market's patience seems to be running out," Glaser explained.
Concerns with the future of the euro, China's economic strength, U.S. jobs picture and other issues "turned sentiment, and stocks, lower in the second quarter," he wrote. "The Morningstar U.S. Index dropped 5.7 percent during the last 13 weeks." Still, the index is up 5 percent for the last 12 months and has returned an annualized 16 percent during the last three years.
Large-growth funds dropped 5.62 percent in the second quarter, while mid-cap growth products moved down 6 percent and small-growth 5.42 percent. Their value counterparts lost 3.60 percent, 4.81 percent and 4.83 percent respectively.
Year to date through June 30, though, U.S. diversified funds are up 7.66 percent, with growth funds outpacing value products overall. The S&P 500 has improved nearly 9.50 percent on a total-return basis for the January-June period.
Global Performance
The world-stock group dropped 5.94 percent in the second quarter, while the overall international-equity category declined by 6.66 percent. During the past three months, the MSCE EAFE Index moved down 7.13 percent, according to Morningstar.
For the past six months, though, international-equity funds are up 5.04 percent, outpacing the improvement of the MSCI EAFE Index of 2.96 percent.
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Janet Levaux
Editor-in-Chief Janet Levaux has covered the financial markets since 1991, with a focus on financial advisors since 2005. After graduating from Yale and the Johns Hopkins School of Advanced International Studies (SAIS), where she studied global economics, Janet worked as a freelance financial and business writer in Japan, and then as a reporter and editor for Investor's Business Daily and the Bay Area News Group in California. She earned an MBA in 2007 and since then has helped lead key ThinkAdvisor projects like its Neal-Award winning reporting on Ken Fisher, Luminaries awards program and Women in Wealth newsletter.
