Here's what you need to know about first-quarter mutual fund returns: Large company stocks beat small company stocks, growth trumped value, and
international equities bested the home-grown variety.
The Standard & Poor's 500 stock index gained 6.1% in the first quarter through March 31, including reinvested dividends. By contrast, the average large-company growth fund jumped 8.7% and the average large-company foreign growth fund 9.2%, according to Morningstar Inc.
The first quarter has averaged a 1.7% price gain since 1988, and typically, the second quarter is better than the first.
"The beginning of the year has pension funds adding money, bonuses that need to be invested, individual retirement accounts that need to be funded — and people get money back from Uncle Sam in the form of tax returns," said Sam Stovall, chief investment strategist for CFRA.
The first quarter was so good that some investors could sell Monday and have higher average gains than the stock market returns all year. Large-company stocks have gained an average 10.9% since 1926. But 83 diversified U.S. stock funds have gained more than that in the first quarter alone. The top performer:
Transamerica Capital Growth A (IALAX), up 16.4%.
International investors are thanking India. Wasatch Emerging India fund was the top-performing foreign fund in the first quarter, up 22.7%. On average, funds that invest in India gained 20.3%, and emerging-markets funds gained 11.6%.
If you looked to
alternatives, you looked to lower returns. Long/short equity funds gained 2.9% in the first quarter, while market-neutral funds were stuck in neutral, gaining an average 0.74%. Precious metals funds, however, gained 7.6%.
Technology, financials and materials stocks showed the biggest improvement in corporate earnings, Mr. Stovall said, with gains of more than 15%.
"This is the third successive quarter of earnings gains after emerging from an earnings
recession last year," he said.
But current stock investors are paying a high price for those earnings. Using forward estimates, the S&P 500 trades for 18.3 times earnings versus an average 16.2 since 1988. On a 12-month trailing GAAP basis, stocks are selling at 25 times earnings.
"It's the second-longest and second-most-expensive market since World War II," Mr. Stovall said.
