Mutual Fund, ETF, and Financial Markets Update October 2015

The long-awaited stock market correction finally came in August, with the S&P 500 declining (12.5%) from its recent high to its low point. It was the market’s first correction since 2011. This time around the blame fell on slowing growth in emerging market, and China in particular, the crash in commodity prices, and fears surrounding anticipation of the Federal Reserve’s first interest-rate hike. Stocks rebounded by the end of the quarter to cut the losses almost in half as the final tally was a fall of (7.3%). Small Cap Growth stocks took the biggest hit as the former high flyer dropped an unlucky (13.1%) while their Large Cap Growth brethren held on better than other domestic stock categories by falling only (5.3%).

The flight to quality in this risk-off environment pushed bonds up 1.2% which actually helped REITs as falling interest rates pushed them up 3.1% for the quarter. You could not hide by investing overseas as a (17.9%) drop in Emerging Market Equities was a drag on International stocks which fell (10.6%). Following the FED’s decision to hold interest rates steady, stocks headed south to test the August lows as the quarter came to a close. As I write the quarter’s update stocks have started off the 4th quarter with a strong upward move, so its possible they could finish the year in the plus column.

The 3rd Quarter of 2015 was a difficult across the board, but as often happens in volatile financial markets most Managed Futures funds did their job with AQR Managed Futures Strategy (AQMNX) leading all of our funds with a gain of 6.2%. This was followed by Credit Suisse Managed Futures Strategy (CSAAX) and AMG Managers Real Estate Securities (MRESX) which both gained 2.1%. Traditional bond funds performed well this quarter, with Fidelity Intermediate Government Income (FSTGX) being the best of our domestic bond funds with a 1.2% gain, while International Bond funds that hedge against a rising US dollar were also able to provide positive returns as PIMCO Foreign Bond (USD-Hedged) (PFODX) picked up 1.7%.

This was one of those quarters that we will be highlighting stock funds that lost the least. On the home front the larger the better as Parnassus Core Equity (PRBLX) lost (4.4%), Parnassus Mid-Cap (PARMX) fell (5.4%), and Hodges Small Cap (HDPSX) dropped (8.6%). Overseas funds were not any better as FMI International (FMIJX) which lost (7.0%) and Wasatch International Opportunities (WAIOX) which declined (6.1%) would be considered good performers.

As might be expected given the difficult financial markets this quarter, iShares Barclays 20+ Year Treas Bond (TLT) topped our list of ETFs with a gain of 7.8%, while iShares Core Total US Bond Market ETF (AGG) added 1.7% and SPDR Barclays International Treasury Bond (BWX) tacked on 1.3%. Interestingly Utilities Select Sector SPDR (XLU) was the leading sector ETF with a 3.5% gain, followed by Credit Suisse Long/Short Equity ETN (CSLS) with a rise of 1.8% and iShares FTSE NAREIT Real Estate 50 (FTY) which added 1.5%.

On the other side of the tracks PowerShares Nasdaq 100 (QQQ) lost only (5.1%), WisdomTree MidCap Dividend (DON) dropped (6.1%), and iShares S&P SmallCap 600 Growth (IJT) fell (6.7%). The top performing country ETF was iShares MSCI Switzerland Index (EWL) which dropped (7.1%) while you only had to cross the border to lose (9.3%) by investing in iShares MSCI Mexico Index (EWW). SPDR S&P Biotech (XBI) wiped out all of its gains from the first half of 2015 with a collapse of (24.8%) this quarter.