Christine Benz of Morningstar Reviews Mutual Funds in the 4th Quarter
Tuesday, January 01, 2008JEFF YASTINE: As we noted, stocks went on a roller coaster ride during the final 3 months of 2007. So how did the 4th 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 to Nightly Business Report.
CHRISINE BENZ, DIRECTOR OF MUTUAL FUND ANALYSIS, MORNINGSTAR: Jeff, Happy New Year to you too.
YASTINE: Thanks, let's begin by taking a look at which mutual fund categories did best between October and December, and as we see Natural Resource funds were back on top. Wondering if that reflects the surge in gold and oil prices.
BENZ: Very much so, primarily the strength in energy prices because these funds invest heavily there. Interestingly though, Jeff, one thing I noted was that one of the best performers was actually a fund that invests in alternative energy sources such as wind and solar power producers.
YASTINE: Let's turn to top individual funds of the quarter and assets of more than $50 million and we see the winners are mostly emerging market funds specializing in Asian stocks. Did those funds also do well for the full year?
BENZ: They did. A lot of money has been sloshing in to emerging markets. It has been a very broadbased rally. I think investors are betting if growth is slowing down in the U.S., perhaps due to the housing related crisis, that perhaps emerging markets could continue to go full steam ahead and continue to grow very rapidly.
YASTINE: It's interesting to note, while the best performing fund of 2007 was also an emerging market fund, it specialized in a different region -- Latin America.
BENZ: That's right, Latin America has been very hot for a while now. This particular fund is a fund that actually uses financial derivatives to deliver twice the returns of a Latin America index. So if Latin America is up two percent on a given day, this fund will be up four percent. That leverage has been a very powerful factor behind this fund's returns.
YASTINE: Looking at the longer term. The top fund for the past three years involved another emerging market, Russia.
BENZ: If you bought this fund three years ago, enjoy your retirement because it's been a terrific performer. Russia is actually very dependent on the energy market. So when oil prices are strong as they have been for the past several years, Russia will do very well. That explains this fund's great returns.
YASTINE: Now, if we turn to the largest funds in terms of assets, it's a very mixed picture in terms of the fourth quarter. But the clear winner was the lone bond fund, Pimco Total Return.
BENZ: That's right. With the Fed lowering interest rates, a bond fund like this one will do very well. As it happens, Bill Gross and the team at Pimco had been positioning this fund to benefit from lower rates. So it was really in a sweet spot of the market.
YASTINE: Yes, Christine, 2007 clearly, as these results show, was the year to be in international funds, to be overseas. And a lot of that had to do with the dollar taking that sharp decline that it did. Do you think that 2008 can yeild similar returns for investors in overseas international funds?
BENZ: It is an open question, Jeff. I think with the Federal Reserve potentially lowering rates ahead, that could be a continued catalyst for foreign currencies versus the U.S. dollar. So, I'm happy to see investors embracing foreign funds. I'm a little concerned that they are performance chasing, so they are expecting some sort of overnight payoff. That may not come.
YASTINE: All right, Christine, again appreciate your being on the program.
BENZ: Thank you. Jeff. Happy New Year.
YASTINE: And Happy New Year to you as well. Our guest Christine Benz of Morningstar.
