As the market has performed fairly poorly this year, many mutual funds have posted losses throughout 2015. After all, the S&P 500 Index is down 4% year-to-date. This will inevitably bring down many mutual fund classes along with it, and after including fees and expenses, performance of many mutual funds may disappoint investors.
However, there is still an argument to be made for sticking with high-quality mutual funds, and the market in general.
Investors Losing Their Appetite for Equity Mutual Funds
Flows have trended downward more recently as well. In September, equity funds posted outflows in three out of the four weeks. Equity fund outflows totaled $19.1 billion while inflows totaled $12.7 billion, according to Lipper. That equates to a net outflow of $6.4 billion.
Of course, this is no surprise given fund flows tend to track the performance of the broader market in general. As the market has declined this year, investors have taken money out of mutual funds, using them as a source of funds and a means to reduce exposure to the perception of future market declines. The equity market had enjoyed a six-year, virtually uninterrupted rise since the financial crisis. At some point, volatility was bound to return.
Bond Mutual Funds Reap the Benefits
For example, taxable bonds and municipal bonds have posted decent across-the-board gains in the third quarter, and longer-duration bonds outperformed intermediate-term bonds. This is because bond prices increase when yields decline since price and yield are inversely related.
The Bottom Line
For investors with a long-term time horizon, it makes sense to use market downturns to add to mutual funds since those funds can be purchased at more attractive prices.
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