2013: A Look Back And Ahead
There were plenty of ups and scary downs in the market in
2012. But overall the market posted a gain.
U.S. diversified funds gained 12.91% through Dec. 27. Pretty
ho-hum. But it topped 2011's 2.90% setback. And Legg Mason's $979
million Capital Management Opportunity's 36.58% '12 gain through
Dec. 28 topped funds with $100 million or more in assets.
Taxable bond funds gained 6.19%. Emerging markets led,
skyrocketing 18.26%, due largely to yield-hungry investors, says
Gary Madich, chief investment officer of fixed income at
High yield was close behind, gaining 14.54%.
Treasuries lagged, up 2.56%. Tax exempts topped taxables,
jumping 7.08% as investors chased yield and dodged the volatility
of taxables and low yield of Treasuries.
Among equities, world stock funds outperformed, gaining 16.87%
on average. Who woulda thunk it, given China's slowdown and the
Foreign securities gained strength as many investors
diversified away from U.S. securities and the fiscal cliff.
Still, the S&P 500 gained 15.33%.
Investor jitters over the eurozone peaked on June 4, as the
MSCI EAFE index troughed. The climb off the bottom was buoyed by
European Central Bank President Mario Draghi, who on July 26
vowed to do "whatever it takes" to keep the eurozone from
From its June 4 low through Dec. 27, the S&P 500 soared
12%, overcoming a fourth-quarter sell-off through Nov. 16 and a
late December fiscal-cliff sell-off.
Many investors felt the U.S. election opened the way for a
resolution of the fiscal cliff and debt ceiling logjams, Madich
That boosted investor optimism stemming from signs of a
recovery in China and of stabilization in Europe and in the U.S.,
says Richard Turnill, chief investment strategist of BlackRock's
Alpha Strategies active management business.
Fund categories behaved similarly. Other than funds that use
leverage, midcap value funds were the best performing
cap-size-and-style category among funds. They gained 16.03%.
"We didn't see strong leadership by any group," Turnill said.
"Growth and value had similar returns." Investors moved money at
any sign of a rotation. That juggling act prevented any one group
from outperforming much, Turnill says.
India region funds were the strongest foreign stock funds,
skyrocketing 27.01%. European funds followed, up 22.18% in
In sectors, global real estate funds were tops, soaring
40.14%. Among domestic categories, financial services' 22.45%
gain was tops.
Fund industry assets rose $1.24 trillion dollars in 2012
through November, according to the Investment Company Institute.
Stock funds had net outflow in all but one month. Their outflow
totaled $122.5 billion.
"There was a lack of confidence, especially in active
management, despite market gains," said Morningstar Inc. analyst
Bond-fund inflow stretched back 15 months, and last year
totaled $296.3 billion.
The fund industry battled some regulators' calls for tighter
restrictions on money-market funds.
Reflecting shareholder interest in low-cost passive
management, Fidelity and Vanguard cut fees and lowered investment
minimums on index funds. BlackRock, Schwab and Vanguard cut costs
Here's how the year evolved:
The market rallied for a second straight quarter.
As investor fears over the European debt crisis waned, nearly
two-thirds of S&P 500 companies beat earnings forecasts.
U.S. diversified stock funds climbed 12.32%. The S&P 500
jumped 12.59%, its strongest quarterly rally in more than a
International stock funds advanced 12.55%, led by the 22.63%
gain by India region funds.
Science-technology funds rocketed 20.26%.
Q4 GDP data were reported, showing 4.1% growth. The dollar
fell 1.35% against a basket of key currencies.
Taxable bonds gained 1.92% as Treasury funds fell 2.68%.
Emerging market debt funds surged 6.92%. Yield-chasing investors
pushed muni bond funds up 2.19%.
The market rally ended as investors focused on weak U.S.
employment and the eurozone's debt woes. Negative headlines drove
investors to bonds.
U.S. diversified stock funds fell 4.58% on average. The
S&P 500 tumbled 2.75%.
International stock funds lost 7.17%. Latin American funds'
12.32% setback was the worst among regional groups.
Real estate funds' 3.39% gain led sectors, most of which lost
ground. Precious metals slid the most, down 13.44%.
The U.S. said Q1 GDP grew 2.0%. The dollar jumped 3.29%.
With investors seeking safe havens, Treasury funds soared
4.91%, leading taxable bond funds to a 0.90% gain. Muni bond
funds tacked on 1.84%.
Heartened by ECB President Draghi's vow to preserve the eurozone
and by Federal Reserve Chairman Ben Bernanke's pledge to amp up
U.S. GDP growth, the markets rallied.
U.S. diversified stock funds gained 5.29%. The S&P 500
jumped 6.35%. World equity funds shot up 6.63%. Portfolios
betting on India gained the most, up 13.74%.
Precious metal funds led sectors, erupting 22.39%.
The U.S. said Q2 GDP growth was 1.3%. The dollar sagged
Taxable bonds gained 2.21%, led by emerging markets, up 6.45%.
Treasury funds edged up 0.34%. Muni bond funds gained 2.26%.
It was a seesaw quarter. The market slumped through the latter
part of the presidential election campaign and Hurricane Sandy's
sweep of the Northeast. The rally began Nov. 16, amid hopes for
avoiding the fiscal cliff and resolving the U.S. budget deadlock,
as well as signs of Chinese recovery and stabilization in the
U.S. and Europe.
After pulling back 6.06% through Nov. 15, the S&P 500 was
up 0.47% for Q4 through Dec. 27. U.S. diversified stock funds
were up 0.02% through Dec. 27.
World equity funds gained 4.76%, led by China region funds'
International real estate funds topped sectors, up 9.31%.
Industrials funds' 6.88% gain led domestic groups. The government
said Q3 GDP rose at a 3.1% clip.
Existing-home sales were on track to rise 10% in 2012, hitting
their highest level since '07, the National Association of
The U.S. dollar slid 0.38%.
Taxable bond funds gained 0.93%, led by emerging market local
currency debt funds' 3.73%. Treasury funds lost 0.07%.
Muni funds gained 0.56%.
Phil Orlando, chief equity strategist for Federated Investors,
said investors should expect 2013 GDP growth of 2.1%, well below
the 3% long-term annual trend.
Richard Weiss, senior portfolio manager, asset allocation
strategies for American Century, likes growth over value, REITS
and small caps. "Basic materials should do well as housing
recovers," he said. He is trimming defensive sectors like
precious metals, health care, utilities and consumer staples.
BlackRock's Turnill expects the low-growth environment to
continue, although he sees stabilizing GDP growth in emerging
markets. In developed markets, he likes dividend-paying
Madich sees lower fixed income returns in 2013. JPMorgan
portfolios are generally underweighting Treasuries and
U.S.-backed agency debt due to low yields.
He is focused on investment grade corporates, high-yield debt,
munis and mortgage-backed nonagency securities. And he likes
emerging market and European debt.
"At some point you've got to go where asset prices are
depressed," he said. "That means Europe, China, Japan."