"The Economy and the Markets at Mid-Year"-Christine Benz of Morningstar on Mutual Funds
Friday, July 03, 2009PAUL KANGAS: As we noted, stock prices took a turn for the better in March and kept rising until mid-June. So what did that rally mean for holders of mutual funds? To help us find out, joining us now is Christine Benz, director of personal finance for Morningstar. Christine, welcome back.
CHRISTINE BENZ, DIR., PERSONAL FINANCE, MORNINGSTAR: Hi, Paul. Nice to be here.
KANGAS: Now, starting off let's look at fund sectors that did the best in the second quarter and at the top, Latin American stock funds.
BENZ: Right. Emerging markets generally really soared in the second quarter of this year and Latin America came out on top, in particular, because Brazil which tends to be the most dominant market in Latin America also really rebounded nicely after a poor performance in 2008.
KANGAS: For the top funds of the quarter, let's begin with the best performer among growth stock funds, Burmiwal Oasis with a gain of over 50 percent.
BENZ: Right. This is a quirky fund, Paul. I took a look at its portfolio. It's really hard to know what's in here because the manager trades very frequently, but I did see a few leveraged index funds in the portfolio so I think investors here really need to be on the lookout for very volatile performance.
KANGAS: And the best performer among value funds was an index fund, namely Rydex S&P small cap 600 pure value.
BENZ: Not your typical broadly diversified index fund. Instead this is a micro cap value index fund that is very concentrated in its top holdings as well as in certain sectors, in particular in the consumer sectors, retail and restaurants, especially.
KANGAS: Interesting. And so no one will think we're ignoring bonds, the top bond fund of the quarter was Fidelity adviser high income advantage, up 33.4 percent. Tell us about that.
BENZ: This is a junk bond fund so it buys low quality bonds in general and it tends to actually buy lower quality bonds than the typical junk bond fund. That hurt it last year but has helped it more recently.
KANGAS: Now over the past year, the biggest upside moves were made by overseas, were made overseas but Oakmark global select still had a negative return.
BENZ: It did. And that really is owing to its poor performance in 2008. But it has rebounded nicely so far this year thanks to good performance from both the domestic and the foreign stock portions of this portfolio.
KANGAS: And leading the emerging funds Dreyfus emerging Asia and I hear that lately that's really been hot.
BENZ: It has. This is a rags to riches story. This is a fund that did lose a lot in 2008 but has managed to really claw its way back over the past quarter. It's gained 60-plus percent in the second quarter alone.
KANGAS: Finally let's see what happened to the largest funds over the quarter and for a change, a lot of double digit gains.
BENZ: Right. This is something we have not seen from the biggest stock funds over the past year and a half or so. But what we see here is that American funds euro Pacific growth which is the sole foreign stock fund among these five largest has actually performed really well relative to the domestic stock funds here.
KANGAS: Christine, after the nice gains registered in this quarter, is it too late for fund investors to get in on the rally, yes or no?
BENZ: I don't think so, Paul. Most funds have not registered the kind of astronomical gains that we have just been talking about and our equity analysts here at Morningstar continue to think that the broad stock market is pretty undervalued relative to their estimates of fair value.
KANGAS: Very good.
BENZ: We think there's upside.
KANGAS: Very good indeed, Christine Benz as always, thanks for your insight.
BENZ: Thanks Paul. It's great to be here.
KANGAS: My guest Christine Benz of Morningstar.
