Mutual fund class of 2016 gets boost from international investments

Fund sponsors followed flows, which led to a reasonably happy outcome for many

Aug 18, 2017 @ 4:12 pm

By John Waggoner

The mutual fund class of 2016 — those that made their debut last year — has a certain worldly air about it that has helped performance this year.

Morningstar's database lists 327 mutual funds and 246 exchange-traded funds launched in 2016. Typically, new funds follow whatever fared well the previous year. This year, however, fund sponsors followed the flows — and that had a reasonably happy outcome for many.

For example, investors poured a net $203.3 billion into international stock funds and ETFs in 2015, according to the Investment Company Institute, while yanking $107.2 billion from their domestic stock counterparts. The industry turned out 70 new international mutual funds last year and 58 foreign stock ETFs, despite the fact that overseas markets fell 5.66% in 2015.

Those funds have scored decent gains in 2017. The average large-company foreign blend mutual fund has gained an average 17.4% through Wednesday, according to Morningstar. Nevertheless, the average new foreign fund has gained 16.69% this year. New funds are typically small, which can be an advantage, but they often have above-average expense ratios — a distinct disadvantage. New open-end diversified emerging markets funds have lagged by a similar amount.

Results for new foreign ETFs were more varied, as sponsors added various new factors to international indices. JPMorgan Diversified International Currency Hedged ETF (JPIH), for example, hedged away much of the foreign markets' gain by reducing currency risk. The fund has gained 9.87% this year. The top performer in the category, Barclays ETN+ FI Enhanced Europe 50 ETN Series B (FLEU), got to the top of the heap by adding leverage. It's up 33.42% this year.

In a soaring year for stocks, it was still possible to roll out some turkeys. Add leverage to long-suffering energy master limited partnerships, for example, and you get the UBS ETRACS 2xMonthly Leveraged Alerian MLP Infrastructure Index ETN SeriesB (MLPQ), which has relieved investors of 30.37% of their accounts this year. And, proving once again that friends don't let friends trade volatility, REX VolMAXX Long VIX Weekly Futures Strategy ETF (VMAX) has lost 64.76% this year.

To be fair, leverage, like dynamite, can have good uses as well as bad. Direxion Daily CSI China Internet Bull 2X Shares (CWEB), which has $19.4 million in assets, has soared 147.17% this year.

Among the success stories from the class of 2016:

Vanguard International Dividend Appreciation ETF (VIGI), with assets of $628.2 million. The fund has gained 20.6% this year.

UBS AG FI Enhanced Europe 50 ETN (FIEE), a leveraged Europe fund, has jumped 33.87% and has assets of $542.3 million.

• First Trust Nasdaq Bank ETF (FTXO), is up just 1.3% this year, with assets of $1 billion.


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