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Bull run continues for most mutual funds in second quarter

Nearly all types of mutual funds made money last quarter, powered by continued gains in stock and bond markets around the world. Everything from plain-vanilla bond funds to broad stock index funds to potentially risky emerging-market stock funds rose from April through June.
By STAN CHOE, AP Business Writer Published: July 3, 2014
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— Go ahead and open the latest quarterly statements from your mutual funds when they arrive. It’ll likely be painless, just like it was a quarter ago. And the quarter before that. And the quarter before that.

Nearly all types of mutual funds made money last quarter, powered by continued gains in stock and bond markets around the world. Everything from plain-vanilla bond funds to broad stock index funds to potentially risky emerging-market stock funds rose from April through June. Of the 105 fund categories that Morningstar tracks, 99 posted gains in the second quarter. And the handful that lost money are generally niche funds that rarely play more than a supporting role in an investor’s portfolio.

That means making money was easy last quarter for most mutual fund investors: All they had to do was make sure not to sell. It’s been largely the same trend for years, with only a few hiccups since the stock market bottomed in March 2009 following the financial crisis. Last quarter was the sixth straight quarter of gains for the Standard & Poor’s 500 index, the benchmark for many stock mutual funds.

A look at trends driving performance:

Emerging-market funds had a resurgence.

Worries were so strong last year about some developing economies that Wall Street came up with another catch phrase for them: the Fragile Five. Investors fretted that Brazil, India, Indonesia, Turkey and South Africa would struggle in particular as the Federal Reserve began easing on the accelerator of economic stimulus. Emerging-market stock funds lost 0.1 percent in 2013, which doesn’t sound terrible but was below the 32.4 percent return of the S&P 500.

Emerging-market stock funds have rebounded and returned 6.6 percent last quarter. That beat the 5.2 percent return of the S&P 500. A surge in Indian stocks led the way. Investors are hopeful the country’s new prime minister, Narendra Modi, can drive through reforms that will invigorate its economy. Indian stock mutual funds returned an average 17.3 percent last quarter.

Funds that invest in bonds from emerging markets similarly got back up off the canvas after a tough 2013. They returned an average 4.4 percent last quarter, the second-best performance of the 32 bond fund categories that Morningstar tracks. They lost an average of 7.3 percent last year.

Were reports of the death of bond funds wrong or early?

In January, much of Wall Street was forecasting that bond mutual funds were due to decline. The bond market was coming off its first losing year since 1999, and most analysts expected interest rates to rise. When interest rates rise, prices for existing bonds fall because their yields suddenly become less attractive.

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