2006 Mutual Fund Analysis
Monday, January 01, 2007JEFF YASTINE: As we noted, the stock market ended 2006 on a tear with most of its gains coming in during the final three months. So how did the fourth quarter turn out for mutual funds? To help us find out, joining us from Chicago is Christine Benz, director of mutual fund analysis for Morningstar. Christine, happy New Year and welcome back to NBR.
CHRISTINE BENZ, DIRECTOR OF MUTUAL FUND ANALYSIS, MORNINGSTAR: Hi, Jeff. Happy New Year. Same to you.
YASTINE: Let's begin by taking a look at the mutual fund categories which did best between October and December, the last quarter. And it seems that international funds were the place to be especially Latin American stock funds which on average gained more than 21 percent.
BENZ: Latin America had a great year continuing its very strong run. This is a resource-rich region, so it's benefited from the surge in commodity prices and also investors are feeling a lot more comfortable with the fiscal restraint that Brazil and Mexico in particular have shown.
YASTINE: Now let's move on to the top individual funds of the past quarter. These are ones with assets of at least $50 million. Of these results, they're still preliminary but China funds seem to dominate and that's led by the Dreyfus premium greater China fund with a return of 37 percent for the quarter.
BENZ: It's been all about China. They've had a very hot IPO market. I think in some respects you could say that Chinese companies have grown into the valuations that were arguably too rich in the late '90s and early '00.
YASTINE: Certainly and then if we look at the full year of 2006, again the Dreyfus premiere greater China fund also the apparent winner there with a gain of 83 percent. Let's take a longer-term perspective. Let's look at ones of the past five years and the winner there, U.S. global investors world precious minerals fund with an annual return, annualized return of more than 47 percent, quite a run for that one.
BENZ: It is and this is a fund that has benefited from the surge in gold prices which have benefited from demand in emerging markets. We've also seen a lot of demand for other metals which this fund also owns due to the surge in building happening in developing markets. So this is a fund that has benefited both ways.
YASTINE: Now let's look at some of the largest funds in terms of assets. Again it looks like there's a very good final quarter for this group with returns generally in the 6 to 8 percent range except for Pimco total return, the lone bond fund in the group and as I understand, these funds did even better for the year as a whole.
BENZ: These funds did terrifically well. EuroPacific growth here on this list is the only foreign stock fund. It shows how well you've done if you had at least a portion of your portfolio overseas. Of course, you benefited from strengthening foreign currencies versus the U.S. dollar.
YASTINE: Now if we look at real estate funds, those also continued to be strong in 2006 with that group going up as well more than 30 percent. That's more than any other domestic sector, but I understand that group has started to go into the red in the past handful of weeks.
BENZ: It's started to sputter, but on the whole, you've done very well investing in REIs, which these funds tend to focus on. I think perhaps if you've seen some weakness recently, it's because the yields that you earn on a real estate fund simply aren't that compelling relative to what you could learn on a much less risky bond fund. So my guess is investors are rotating out of REITs for that reason.
YASTINE: Rotation, rotation, rotation. Christine, thanks for your time.
BENZ: Thanks, Jeff. Happy New Year.
YASTINE: Our guest Christine Benz of Morningstar mutual funds.
