According to Lipper, stock funds that are based in the U.S. saw the biggest weekly outflow since early January in the week ending May 4. Dismal corporate earnings were blamed. However, funds that are deemed safer than their stock counterparts attracted significant investor attention during the same timeframe.
Investment-grade bond and Treasury funds saw healthy investments during the week. Moreover, the safe-haven appeal continued to help precious metal funds to witness significant inflows. Given the disappointing performances of stock funds, it may prove profitable to invest in mutual funds from sectors that are drawing the most attention.
Biggest Withdrawals Since January
According to the Lipper’s report, U.S. based stock funds witnessed an outflow of $11.2 billion for the week ending May 4. This was worse than the week ending Jan 6, when investors had pulled out $12 billion. The head of research services for Lipper, Tom Roseen said: “Look at the bad earnings that came out on Microsoft, Apple, Intel… People are freaking out a bit and pulling money out. The earnings reports have not been all that strong.”
Technology mutual funds saw an outflow of $722 million during the week, reflecting their highest withdrawals level since the February lows following weak first-quarter technology earnings including that from Apple Inc. (AAPL – Analyst Report) . According to our latest Earnings Preview article, total earnings for 436 S&P 500 members are down 7.5% from the same period last year on 1.5% lower revenues, as of May 6. Also, total earnings for tech companies, which reported results as of May 6, are down 5.6% on only 1.0% higher revenues.
Moreover, high-yield bond funds, which are considered riskier than other bond funds, also saw a significant volume of withdrawals for the week ending May 4. During the week, these funds witnessed an outflow of $1.8 billion — the largest since Jan 20. For the week ending Jan 20, $2 billion of investment was pulled out from these funds.
Safer Funds Attracted Most of the Attention
Investment-grade bond and Treasury funds, on the other hand, attracted a significant amount of investment for the week ending May 4. During the week, investment-grade bond funds took in $2.1 billion of new cash, witnessing inflows for the ninth consecutive week.
Taxable bond funds recorded inflows of $1.1 billion, registering inflows for fifth consecutive week and Treasury funds witnessed inflows for the first time since the latter half of February. Moreover, another safe-haven option – precious metals funds – posted healthy inflows during the week. Funds that focus mostly on investing in gold and silver took in $1.3 billion of investments for the week ending May 4.
6 Safer Funds to Buy Now
Against this backdrop, we highlighted two Zacks Mutual Fund Rank #1 (Strong Buy) funds from each of the three attractive safe-haven categories – investment-grade bond, Treasury funds and Precious metals. We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Moreover, these funds have strong year-to-date and one-year returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio and carry no sales load.
VFICX has year-to-date and one-year returns of 4.5% and 4.7%, respectively. Annual expense ratio of 0.20% is significantly lower than the category average of 0.87%.
WYABX has year-to-date and one-year returns of 4.6% and 3.8%, respectively. Annual expense ratio of 0.67% is lower than the category average of 0.87%.
Fidelity Spartan Intermediate Treasury Bond Index Investor (FIBIX – MF report) is expected to maintain a dollar-weighted average maturity of three to 10 years by investing a large chunk of its assets in securities listed on the Barclays U.S. 5-10 Year Treasury Bond Index.
FIBIX has year-to-date and one-year returns of 4.5% and 4.7%, respectively. Annual expense ratio of 0.20% is significantly lower than the category average of 0.62%.
T. Rowe Price US Treasury Intermediate (PRTIX – MF report) invests the majority of its assets in securities of the U.S. Treasury and is expected to maintain an intermediate-term average maturity period.
PRTIX has year-to-date and one-year returns of 3.8% and 3.7%, respectively. Annual expense ratio of 0.51% is lower than the category average of 0.92%.
Precious Metals Funds
BGEIX has year-to-date and one-year returns of 80% and 31.4%, respectively. Annual expense ratio of 0.67% is significantly lower than the category average of 1.44%.
Deutsche Gold & Precious Metals S (SCGDX – MF report) invests the lion’s share of its assets in securities of companies involved in operations related to gold, silver and other precious metals throughout the globe.
SCGDX has year-to-date and one-year returns of 75.5% and 23.2%, respectively. Annual expense ratio of 1.00% is lower than the category average of 1.44%.