- U.S. markets struggled to close out the year on a positive note but, on an overall basis, remained up for the year.
- Treasury and municipal bond yields declined across the board after correcting from the recent highs from earlier this month.
- The energy sector was the best-performing sector of the U.S. equity markets, with Tortoise MLP & Pipeline Instl (TORIX) emerging as the best-performing fund for 2016.
- Make sure to check out the previous edition of the Weekly Roundup to get the whole picture.
Market Wrap-Up
The real estate sector was up the most last week, with a return of 1.17% in response to the New Home Sales index, which was up at 592,000 and up 5.2% for the month of November. These figures align with the growing trend that the real estate market in the U.S. has been on the upswing for the last few years. However, the sector is one of the few sectors that are down for the year, with a minimal return of 0.01%. In case you are wondering how to get an exposure to the real estate space, you might want to explore mutual funds that invest in the real estate sector.
International Equity – Most international markets were up, with the MSCI Developed Index increasing 0.62% for the week and up 1.51% for the year. The MSCI Emerging Index was also up 2.72% for the week and 11.98% for the year. Meanwhile, Japan’s NIKKEI Index showed a decline of 1.61% although it ended the year with a slightly positive return of 0.42%. This can be attributed to the weakening value of the Yen compared to other global currencies.
Commodities – Continuing a year long rally, commodities increased for the week, with oil up $0.77 per barrel, or 1.42%. For the year the price of oil increased over 39% or $17.12 per barrel. The price of gold reversed its downward trend for the week and was up $21 per troy ounce in response to slow U.S. equity markets last week. Copper witnessed a moderate decline of $0.01 per pound or 0.40%.
Be sure to check out important tips on how to invest in the right commodity-based mutual fund.
Taxable Bonds – After last week’s bond rally, treasury yields dropped, causing the 2-year Treasury yield to drop back 2 bps to 1.19%. The 10-year and 30-year Treasuries went down by 4 bps and 1 bps respectively. Now that the Fed has finally raised interest rates, become familiarised on how to rebalance your portfolio based on interest rate hikes.
Municipal Bonds – Along with Treasuries, municipal bond yields also decreased across the board.
Both the 10-year AAA-rated and the 30-year AAA-rated municipal bond yields decreased 6 bps and 12 bps respectively from the week before. Municipal fund flows continued the massive outflow trend for the sixth straight week, with over $1.7 billion for the week. As the Fed announced a rise in interest rates earlier this month, 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 | 3.59% | AVALX | 7.89% | Small Value continues to rally with the total market. This fund has over 11% in Alliance One International, Inc. (AOI) which is up over 33% this month. |
| International Equity | European Equities | 4.46% | IDJIX | 7.04% | Has over 18% invested in financials, which continues to mirror the uptrend of the U.S. financial sector |
| Commodities | Broad Basket | 1.41% | RYMEX | 5.06% | Energy, especially oil, has bounced back for the month and the fund has heavy exposure to oil. |
| Taxable Bonds | High Yield | 1.68% | TFCIX | 9.43% | Fund primarily invests in high-yield bonds but also has over 23% in cash and 21% in stocks. The cash sheltered the fund from the downward bond market as well as catching the uptrend of the U.S. equity market. |
| Municipal Bonds | Muni California Long | 0.99% | VCLAX | 1.69% | With bond yield declining over the past week, longer-term bonds had the biggest gains |
Performance Snapshot: Top Fund
This fund produced the 2016’s best return, primarily by having over 94% invested in the energy sector, which is up over 27% for the year. The top holding is Spectra Energy Corp (SE), which is up over 71% for the year.
The following table provides the top-performing mutual funds on a YTD basis, as of December 30, 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 |
|---|---|---|---|---|---|---|---|
| Tortoise MLP & Pipeline Instl | TORIX | Master Limited Partnerships | 42.12% | 0.99% | 37.23% | $2,340 | Energy |
| Hodges Institutional | HDPIX | Mid Cap Blend Equities | 40.29% | 1.00% | 28.05% | $306 | Consumer Cyclical |
| JHancock Regional Bank A | FRBAX | Financials Equities | 37.93% | 1.27% | 13.73% | $1,190 | Financials |
| Williston Basin/Mid-North America Stk A | ICPAX | Energy Equities | 37.82% | 1.44% | 22.61% | $664 | Energy |
| First Eagle Global | FEGIX | Precious Metals | 37.25% | 1.03% | 40.49% | $1,130 | Basic Materials |