2015 Financial Markets, Mutual Funds, and ETFs Review

As 2015 comes to a close one would think it was a rather quiet year in the financial markets as stocks and bonds gained less than 1.0% for the year. In reality it was quite a volatile year as commodities continued to plummet led by a plunge in oil prices thanks to a significant over supply. The long-awaited stock market correction finally came in August, with the S&P 500 declining (12.5%) from its earlier 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 markets and fears in anticipation of the Federal Reserve’s first interest-rate hike in almost 10 years. Stocks have rebounded since then, but as you can see from the results the returns things turned out a lot better than investors anticipated this summer even as the FED finally took action to increase short-term interest rates in December.

The winner this year has been Large Cap Growth stocks which finished up 5.7% thanks to the Technology Sector. On the other hand, Small Cap Value stocks dropped (7.5%) as style had an even larger impact on results than market cap. While developed country international stocks have fallen (3.0%) this year, it is Emerging Markets equities that have taken the biggest hit, falling almost (15.0%).

Investment Returns as of December 2015

Investment Returns as of December 2015

Rising interest rates in 2015 meant that duration had a larger impact on bond returns than it has in years. Wells Fargo Short-Term Hi Yield Bond (SSTHX) was up 2.1% while Fidelity Inflation-Protected Bond (FINPX) fell (2.2%). The rising dollar had an even larger impact on International Bonds as Dreyfus International Bond (DIBAX) fell (6.8%) Payden Global Fixed Income (PYGFX), which is hedged against the dollar, rose 1.5%. Interestingly Emerging Markets Bonds rebounded in spite of the rising dollar from a difficult 2014 as Fidelity New Markets Income (FNMIX) was up about the same as domestic bonds with a gain of 0.2%.

While some of the new equity funds that made it on our favorites list for the coming year were strong performers in 2015, some of the better ones that stayed on board were Parnassus Core Equity (PRBLX) and Congress Mid Cap Growth (CMIDX) which both lost less than (1.0%). The big winner was a closed fund, Brown Capital Small Company (BCSIX), which gained 8.8%. Market Cap had the opposite impact overseas as Fidelity International Growth (FIGFX) gained 3.9% while Wasatch International Opportunities (WAIOX) rose 9.5%. It may not look it, but Driehaus Emerging Markets Small Cap Growth (DRESX) was one of the better performing Emerging Markets fund with a fall of ‘only’ (10.2%). Outside of traditional stocks and bonds a couple of the better performers were AMG Managers Real Estate Securities (MRESX) which gained 5.3% while Boston Partners Global Long/Short (BGRSX) added 6.3%.

As was the case for mutual funds lower duration and emerging markets were the better performing ETS as iShares 3-7 Year Treasury Bond (IEI) gained 1.6% while PowerShares Emerging Markets Sovereign Debt (PCY) gained 2.3%. It was growth all the way for domestic equities with PowerShares Nasdaq 100 (QQQ) gaining 9.5%, iShares S&P Mid Cap 400 Growth (IJK) adding 1.9%, and iShares S&P Small Cap 600 Growth (IJT) rising 2.7%.

Outside of the US, the best stock market ETF on our list was iShares MSCI Japan (EWJ) which picked up 9.2%. A couple of the new strategies that we added to our Favorite ETF list had strong years, in particular WisdomTree International Hedged Quality Dividend Growth (IHDG) which gained 11.8% with a lot of help from its hedge against the US dollar. Another strong performer was iShares MSCI EAFE Small Cap (SCZ) which picked up 9.1%. Our best sector ETF was SPDR S&P Biotech (XBI) which gained 13.6% while anything related to commodities was down at least double digits. A bet on rising dollar using PowerShares DB US Dollar Bullish (UUP) paid off with a 7.0% rise this year. And finally and ETF that seems to have a handle on Long/Short equity has rise from the pack as First Trust Long/Short Equity (FTLS) gained 4.7%.

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.

Mutual Fund, ETF, and Financial Markets Update July 2015

Volatility kicked up a notch in the second quarter of 2015 thanks to concerns about the economy of China, and possible defaults in Greece and Puerto Rico. The result was not good news for stocks or bonds. June’s losses essentially wiped out gains earlier in the quarter in the stock market which finished slightly above the flat line with a gain of 0.1%. The expectation that the FED will finally raise interest rates this year took bonds down (1.7%) for the quarter. Rising rates were also a significant factor in the big loss for Real Estate in the form of REITS which fell (10.0%) over the last three months. Aided by a falling US Dollar, oil rebounded for major gains and international stocks and bonds held on to positive returns this quarter. Small Cap growth stocks added 2.0% this quarter while Mid Cap value stocks went in the opposite direction falling (2.0%) over the last three months.

Investment Returns as of June 2015

Investment Returns as of June 2015

It was an unusual quarter for financial markets as the uncertainty did not result in the typical flight to quality. Instead interest rates rose, which caused a fall of (9.6%) by iShares Barclays 20+ Year Treasury Bond (TLT). While rising rates often help the US dollar, you could not tell that from PowerShares DB US Dollar Index Bullish (UUP), which fell (3.4%). Smaller continued to be better as iShares Russell Microcap Index (IWC) picked up 3.1% while Large Cap ETF PowerShares Nasdaq 100 (QQQ) gained 1.6%. Given those two returns it is surprising that SPDR S&P MidCap 400 (MDY) actually lost (1.1%).

iShares MSCI Brazil Index (EWZ) turned out to be our best performing country ETF with a gain of 6.4% while iShares MSCI Malaysia Index (EWM) was the one to avoid as it lost (7.7%). Commodities turned up in June with PowerShares DB Agriculture (DBA) picking up 5.5% while SPDR S&P Biotech (XBI) was the top sector with a gain of 12.0%. On the other end of the spectrum, iShares FTSE NAREIT Real Estate 50 (FTY) lost (9.7%).

The fall in the US Dollar hurt international funds that are hedging against the dollar like PIMCO Foreign Bond (USD-Hedged) (PFODX) which lost (4.1%). On the other hand, that help unhedged funds like Fidelity New Markets Income (FNMIX) which picked up 1.5%. Some of our better domestic equity mutual funds were Rice Hall James Small Cap (RHJMX) which added 3.9%, Fidelity Low-Priced Stock (FLPSX) which gained 2.5% and Fidelity Focused Stock (FTQGX) which returned 0.1%. The falling dollar was good news for investors in

International stocks as Fidelity International Growth (FIGFX) added 0.7%, Wasatch International Opportunities (WAIOX) returned 3.2% and Driehaus Emerging Markets Small Cap (DRESX) grew by 3.0%. International Real Estate took a much smaller hit than domestic REITs as Third Avenue Real Estate Value (TVRVX) lost only (1.5%). In the alternatives space Boston Partners Global Long/Short (BGRSX) gained 4.0% while Aspen Managed Futures Strategy (MFBPX) gave back less of its 2014 gains than most Managed Futures funds with a drop of (5.2%).

Our Favorite Mutual Funds, Favorite ETFs, Mutual Fund Portfolios, ETF Investment Portfolios,, and Favorite Fidelity Funds have been updated through June 2015.

Mutual Fund, ETF, and Financial Markets Update April 2015

In many ways, the first quarter of 2015 looked a lot like the last quarter of 2014. Oil prices continued to fall and the US dollar continued to rise. While the direction of both trends continued, the strength of the moves showed signs of slowing down. While the overall market gained 1.8%, size and style mattered this quarter. Small Cap Growth stocks picked up 6.6% while Large Cap value actually lost (0.7%). Quantitative easing by European central banks helped International Stocks pick up 3.5% in spite of the fact that the rising dollar provided a strong headwind. Bonds continue to perform well, even as investors speculate on when the US Fed is going to start raising interest rates.

Investment Returns as of March 2015

Investment Returns as of March 2015

Our best performing bond funds were the two International Bond funds that hedge against the US dollar as both Payden Global Fixed Income (PYGFX) and PIMCO Foreign Bond (USD-Hedged) (PFODX) gained 2.5%. SEIX Floating Rate High Income (SAMBX) was not far behind with a 2.4% return, while Fidelity Total Bond (FTBFX) picked up 1.9%.

It was a good quarter for most stock funds, in spite of a difficult March for many. Some of our best performers were Fidelity Focused Stock (FTQGX) with a 4.8% return, Scout Mid Cap (UMBMX) with a 6.0% gain, and Rice Hall James Micro Cap (RHJSX) which added 6.6%. FMI International (FMIJX) was our best Non-US fund with a 7.9% return, while AMG Managers Real Estate Securities (MRESX) was our top sector fund with a 6.7% gain. Our best performer was Credit Suisse Managed Futures Strategy (CSAAX) which added 10.9% in the first three months of 2015.

Falling interest rates helped push iShares Barclays 20+ Year Treasury Bond ETF (TLT) up 4.2% while a rebound for Emerging Market Bonds pushed iShares JPMorgan Emerging Markets Bond ETF (EMB) up 2.9%. On the other hand, the dollar’s continued strength contributed to a difficult quarter for developed country bonds as PowerShares International Corporate Bond (PICB) fell (6.5%).

Some of our better performing stock ETFs were PowerShares Buyback Achievers (PKW) which gained 2.7%, iShares S&P MidCap 400 Growth Index (IJK) which added 7.7%, and iShares Russell 2000 Growth Index (IWO) which rose 6.7%. There was quite a contrast between country ETFs this quarter as iShares MSCI Japan Index (EWJ) returned 11.5% which iShares MSCI Brazil Index (EWZ) lost (14.2%).

Our top sector ETF in the first quarter was SPDR S&P Biotech (XBI) which picked up 21.1%, while PowerShares DB Agriculture (DBA) (11.1%) as commodities continued to lose ground. PowerShares DB US Dollar Index Bullish (UUP) was up 8.1% this quarter. That does not sound like a lot compared to some of the real big movers, but for the US Dollar that’s quite a significant move. That’s quite a headwind for investors looking for returns outside of the United States.

Our Favorite Mutual Funds April 2015, Favorite ETFs April 2015, Mutual Fund Portfolios, ETF Investment Portfolios,, and Favorite Fidelity Funds have been updated through March 2015.