- U.S. markets continue to see new highs, with the Dow nearing the 20,000 mark.
- Treasury yields surge to high levels with the Fed’s decision to raise interest rates by 25 bps.
- Municipal bond funds continue outflows, with a decline of over $2 billion as the Fed raises rates.
- Make sure to check out last week’s edition of the Weekly Roundup to get the whole picture.
Market Wrap-Up
Healthcare stocks were up the most last week, with a return of 2.67%. This was a bounce back from the decline of prior weeks, especially when President Trump indicated his plan to reduce drug prices during his term. The sector is one of two that are still down on a year-to-date (YTD) basis, at -1.82%. Given the performance of this sector, you might want to explore mutual funds that invest in the health and biotech sectors.
International Equity – Most international markets were down for the week, with the MSCI Developed Index declining 0.80% and the MSCI Emerging Index down 2.18%. However, Japan’s NIKKEI Index surged with a 2.71% return and made the year positive with a 1.26% return on YTD basis. This can be attributed to the weakening value of the yen compared to other global currencies.
Commodities – After last week’s huge gains, commodities had modest gains with oil increasing $0.06 per barrel or 0.12%. The price of gold continues to tumble, down $42/troy ounce or -3.66%, mostly because of the recent interest rate hike. Copper had a much more moderate decline, down $0.03/pound or -1.14%.
Be sure to check out important tips on how to invest in the right commodity-based mutual fund.
Taxable Bonds – With the Fed’s meeting on Wednesday, interest rates were raised 25 bps, causing the 2-year Treasury yield to reach the highest level since 2009. While the 2-year and 10-year Treasuries went up by 12 bps, the 30-year maturity went up by only 2 bps. Now that the Fed has finally raised interest rates, become familiarized on how to rebalance your portfolio based on interest rate hikes.
Municipal Bonds – Along with Treasuries, municipal bond prices also decreased, causing all yields to increase.
The 10-year AAA bond yield increased by 14 bps and the 30-year AAA bond yield increased 7 bps from the week before. Municipal fund flows continued the massive outflow trend for the fifth straight week, with over $2 billion for the week and over $8.5 billion over the last month. As the Fed announced a rise in interest rates this week, investors continue to be worried about future hikes and how it will negatively affect the bond market.
Performance Snapshot: Top Fund Category
| Category | Top Subcategory | MTD Subcategory Return (%) | Top Subcategory Performer | MTD Fund Return (%) | Performance Rationale |
|---|---|---|---|---|---|
| U.S. Equity Fund | Small Value | 6.15% | SCMVX | 12.49% | Small Value continues to rally with the total market. This fund has just over 10% in Whiting Petroleum Corporation, which is up over 29% for the month. |
| International Equity | European Equities | 3.86% | MEURX | 5.65% | Has over 18% invested in financials, which have done well for the month with U.S. interest rates being raised this week. |
| Commodities | Broad Basket | 4.70% | RYMEX | 9.14% | Energy stocks, especially oil, have bounced back for the month and the fund has heavy exposure to this sector. |
| Taxable Bonds | High Yield | 1.87% | NCFCX | 13.30% | Fund invests in high-yield bonds while also having a lower duration of 3.08, making it less prone to rising interest rates. |
| Municipal Bonds | Muni National Short | -0.58% | USMTX | 0.14% | Bond funds with longer durations move to the ultra-short funds, which are relatively less sensitive to interest rate fluctuations. |
Performance Snapshot: Top Fund
This fund continues to be the top YTD performance fund for the third straight week, primarily by having nearly 13% invested in the energy sector, which is up over 28% for the year. The top holding is Texas Pacific Land Trust (TPL), which is up over 128% for the year.
The following table provides the top performing mutual funds on a YTD basis, as of December 16, 2016. Only those funds that are rated 5 stars by Morningstar and that generated YTD return greater than that achieved by the S&P 500 are included.
| Top Performing Fund | Ticker | Category | YTD Return (%) | Net Expense Ratio (%) | % of Assets in Top 5 Holdings | Net Assets $ (Millions) | Top Sector Invested |
|---|---|---|---|---|---|---|---|
| Hodges Institutional | HDPIX | Mid Cap Blend Equities | 41.91% | 1.00% | 28.05% | $306 | Consumer Cyclical |
| Tortoise MLP & Pipeline Instl | TORIX | Master Limited Partnerships | 41.50% | 0.99% | 37.23% | $2,340 | Energy |
| Williston Basin/Mid-North America | ICPAX | Energy Equities | 38.52% | 1.44% | 22.61% | $664 | Energy |
| Waddell & Reed Energy | WEGYX | Energy | 36.75% | 1.10% | 22.42% | $243 | Energy |
| JHancock Regional Bank | FRBAX | Financials Equities | 36.42% | 1.27% | 13.73% | $1,190 | Financials |