Every fortnight, MutualFunds.com provides a snapshot of the performance of some key mutual funds which tries to accurately capture the investor interest in specific areas of the financial markets. The report is aimed at providing a quick overview of the sectors, regions and asset classes that moved in a meaningful manner during the last two weeks.
Total long-term mutual fund flows were slightly negative for the two weeks ended August 7, with equities again experiencing net outflows and bonds seeing net inflows.
Equity mutual funds saw $8 billion in outflows, with domestic funds seeing more than $11 billion in outflows, a figure offset by inflows in foreign equities.
Bond funds, meanwhile, saw net inflows of nearly $7 billion, with taxable and investment-grade bonds contributing the most to the positive figure, offset by negative high-yield inflows.
The biggest news these past two weeks was the brief inversion of the yield curve, an event in which the yield on short-term dated bonds is higher than the yield on longer-term bonds. This typically signals a recession is around the corner, although it does not tell much about the timing. One of the reasons for investors’ fears is the trade war between the U.S. and China, which is lingering without a resolution in sight.
In a sign of a slowing global economy, the U.K. economic output shrank by 0.2% in the second quarter, the first decline in seven years. This was down from 0.5% expansion in the second quarter. U.K. manufacturing production also declined by 0.2% in June compared with the previous month.
The U.S. inflation rose more than expected, by 0.3% in July, largely due to increases in gasoline prices. Year-over-year inflation rose 1.8%, while the core figure came in at 2.2%, a little higher than the Federal Reserve’s target of 2%.
July core retail sales advanced 1%, the fourth consecutive monthly increase, beating expectations of 0.4%. Headline retail sales rose 0.7% versus expectations of 0.3%.
European inflation in July grew 1% compared to the year-ago period, the lowest figure since December 2017.
Don’t forget to read our previous edition of trends here.
Markets recovered in the two weeks through last Friday, with all instruments posting gains.
After being the worst performers in the prior week, technology stocks fund (NASDX) shot up 2.6% for the two weeks ended August 16, representing the best performance.
International stocks fund (VGTSX) was the worst performer from the bunch, gaining just 0.19%.
Sectors were mixed.
In a sign investors are still distressed, utilities sector fund (FKUTX) outperformed all sectors, advancing 3.42% for the week.
At the same time, chemicals sector fund (FSCHX) posted the largest loss from the bunch, down 1.85%.
Foreign equities recorded mixed performance, with Europe and Latin American stocks declining and the rest posting tepid gains.
Indian equities fund (WIINX) gained more than 2% for no apparent reasons.
Meanwhile, Latin American equities fund (RLAIX) lost 0.82% for the past two weeks, becoming the worst performer from the pack.
Major Asset Classes
All asset classes were up, with the exception of the currency fund and short duration bonds.
Unsurprisingly, given the yield curve inversion, the best performer from the pack was the long-term bonds fund (PEDIX), which gained 7.6% for the past two weeks.
At the other end of the spectrum is John Hancock’s multicurrency fund (JCUAX), which lost 1.45%.
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The Bottom Line
The yield curve inversion has led to strong performance for long-term bonds and utilities, as investors fear the first inversion since 2007 could be a sign of an impending recession. Meanwhile, investors again withdrew money from equity mutual funds on a net basis and plowed them into bond funds.
We provide this report on a fortnightly basis. To stay up to date with mutual fund market events, come back to our news page here.
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