Aaron Choi looks into the top mutual funds and their returns up to this point in the year.
In the 21st century, the concept of sharing is growing increasingly popular. We share rides to the airport through Uber or Lyft, our newest graduation photos on Facebook, Twitter, and Instagram, and investors’ money through mutual funds. The first modern-day mutual fund ever created was the Massachusetts Trust Fund in 1924. The mutual fund industry has grown so much that it now collectively holds trillions of dollars in assets. It is only fitting that we take a second to see where mutual funds have started this year and track the returns on the best-rated mutual funds over the past few years.
A mutual fund, for those who are not so familiar with it, is a fund that pools together money to invest in whichever securities that fit its mandates. This includes fixed income funds, money market funds, a blend between equity and fixed income investment funds, and funds comprised solely of equity holdings. Within the vast realm of equity investing lies different characteristics of certain equities. These include the stocks of large cap companies, which have greater than $10 billion in market capitalization, mid-cap, and small-cap, as well as value or growth equities.
Mutual funds provide a platform for investing for people who would otherwise not participate in the stock market, either because they are unfamiliar with it, or simply don’t have the time to perform the required due diligence. Most importantly, mutual funds allow investors to maintain a level of diversification. By pooling in billions of dollars from numerous investors, mutual funds can purchase virtually any security on the market. This allows people to invest just $1000 and partake in the returns of all types of asset classes, with the added benefit of reduced risk from diversification. Here we look at some of the best performing mutual funds YTD and look into what drove strong first-half gains on a macro-level.
This fund has returned 27% YTD, and has been successful for many reasons. One of them is that China has been growing faster than expected, and has beaten GDP growth forecasts systematically this year. Over the past year, investors have been doubtful of China’s future investment prospects. Concern grew over its high debt levels and a concern over its inability to maintain growth rates over 7% as it has earlier this decade. Institutional investors largely steered clear of the Chinese stock market due to high volatility and trading halts. The slowing down of the world’s second largest economy would decimate funds that invested solely in Asian opportunities. Another reason why this fund has posted such great first-half returns is the recent surge in stock prices as MSCI announced they were considering including Chinese-listed stocks into their benchmark, MSCI Emerging Markets Index. MSCI’s announcement preceded the $17 billion that would be pumped into the market to purchase stocks for its index. Emerging markets usually have strong growth potential, and Chinese stocks have been one example of a strong performer in 2017.
Growth funds this year have done extremely well, as tech shares of large-cap companies have posted strong earnings from new products and pending acquisitions. Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) come to mind when this year’s biggest stock surges are mentioned. Apple recently beat Wall Street’s expectations for its earnings from its strong iPhone sales, and consumers’ growing iPad purchases. In a period of a looming pro-business agenda, and consumer cyclical products, tech companies that sell consumer goods have the green light for strong yearly performance. If we compare Apple, NVIDIA (NASDAQ: NVDA), and Amazon to other large-cap value stocks, tech stocks have overshadowed them and put to rest the “value stocks v.s. growth stocks” debate for the year. Although these stocks have done well to push up the Fidelity Growth Company Fund, the risk associated with investing in growth stocks are higher than their value stock counterparts. As the Fed continues to raise rates, bonds are not as profitable as they once were in the 0% interest rate environment earlier this decade.
In the realm of retirement planning, there exists funds that allocate investments based on the approaching age of retirement. As the “target-date” approaches, the fund transfers from an investing philosophy of long-term capital growth to wealth preservation. The more distant a target-date fund is, either for retirement or college planning, the higher the equity exposure. In the recent equity bull market that has lifted the Dow Jones Industrial Average to over 22,000 and the S&P to grow more than 8% YTD, 2060 target-date funds have grown over 11.50% in value. This is compared to the average growth rate of 10% or less for target-date funds closer to the present. While the difference between the retirement target-date funds is minuscule, the growth in retirement assets is uplifting news, and is a change of pace from the $3.4 trillion lost in retirement accounts from the financial crisis of 2008.