If your clients are complaining about their bond positions, this would be a good time to remind them about why they own fixed income. Even though stock funds scored big gains in March, they're still trailing bonds for 2016 — and the past 12 months.
The Standard and Poor's 500 stock index gained 6.78% in the first quarter, including dividends, pushing the index to a 1.35% gain for the year, according to S&P. The average large-company blend fund, the
Morningstar mutual fund category most closely matched with the S&P 500, gained 6.37% for the month and 0.29% for the first quarter, according to preliminary numbers from Morningstar.
But intermediate-term bond funds, a popular bond category, have still beaten stocks for 2016 and the past 12 months, rising an average 2.48% for the quarter and 1.30% for March. Bond funds have gained 0.64% for the past 12 months, vs. a 1.96% loss for the average large-company blend fund.
One lesson: As low as interest rates are, they can always go lower, and that's good for bonds. While the U.S. 10-year Treasury yield is currently 1.79%, Germany's 10-year government note is 0.15% and Switzerland's is -0.38%.
Another: The dollar can either help or hinder overseas bond funds. In this case, the falling dollar gave a tail wind to emerging markets bond funds, up 5.17% in March, and world bond funds, up 3.12%.
DOLLAR WEAKNESS
For foreign large blend funds, however, the falling dollar wasn't enough to push returns past U.S. stock funds. The average foreign large blend fund gained 6.86% in March and fell 1.99% for the quarter. But
emerging markets funds soared 11.02% in March.
Muni bond funds did what they do best, which is produce tax-free income in the most boring possible way. National intermediate-term muni funds gained 0.30% in March and 1.41% for the quarter.
Interestingly, long-term California muni funds have gained an average 7.29% a year for the past five years. While California's finances are still most charitably a mess, they're better than they were five years ago. Its general obligation bonds have risen to an A+ rating from Moody's, up from BBB in 2009.
Among diversified U.S. stock funds, mid-cap value jumped the highest in March, gaining an average 8.52%. Top performer: American Beacon Mid-Cap Value (AACIX), up 9.49% in March and 1.21% for the quarter. In the long run – which is to say, five years – large-cap growth has been the winner, gaining an average 9.92% a year.
In the Department of Remarkable Comebacks:
• Latin American funds soared 16.5% in March and 14.74% for the first quarter. The funds have clocked an average 12.29% loss the past five years.
• India funds jumped 12.44% in March, but are still down 3.85% for 2016.
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Equity gold funds, down an average 18.06% a year the past five years, jumped 6.57% in March and 40.7% for the quarter. These funds invest in the stocks of gold mining companies, rather than the yellow metal, and get a big bump in earnings when gold prices rise.
• Energy master limited partnership funds gained 9.23% in March. The funds, the most recent darlings of income investors, got greased by the plunge in oil and natural gas prices. They're still down 36.19% the past 12 months.
