IBD Special Report:
Mutual Fund Monthly
Mutual fund investors rode a roller coaster in November that
started with a post-election sell-off on worries over the fiscal
cliff and then a rebound from oversold levels midmonth on
optimism over a legislative compromise and better-than-expected
global economic reports.
The average domestic mutual fund added 0.96% in November and
12.10% year to date, according to Lipper Inc. The S&P 500
ended the month ahead 0.28% and 14.96%, over the same periods.
The Dow returned 0.54% and gained 9.38% in November and year to
date. The Nasdaq climbed 1.11% and 15.55% over the same time.
Investors will likely have to endure a few more weeks of
volatility as the market reacts to announcements out of
Washington before the Dec. 31 fiscal cliff deadline. The market's
strength suggests it's not concerned about the cliff, say fund
managers at Eagle Asset Management.
"A deal will materialize at some point," they wrote in a
client note. "We don't have much faith the deal will be the grand
bargain we all hope for, but it will be enough to prevent a
The most recent durable-goods orders, home prices, consumer
confidence and third-quarter gross domestic product data show the
economy is growing, albeit slowly, Eagle noted. U.S. GDP grew at
a rate of 2.7% in the third quarter -- 0.7% higher than the
Commerce Department first estimated.
But personal consumption rose only 1.4%, the slowest pace
since Q2 2011, which troubles Russ Koesterich, the chief
investment strategist at BlackRock.
Consumers, whose spending accounts for more than two-thirds of
GDP, can't boost economic growth beyond 2% because they have too
little savings and income growth and too much debt, he
Koesterich recommends investing in sectors that don't depend
on U.S. consumer spending for growth, such as emerging markets,
small developed countries and global technology companies.
Seasonally, the market enjoys a "Santa Claus rally" through
year-end, but will fail to do so if a fiscal agreement isn't
reached, says Ed Yardeni, president of Yardeni Research. He
believes stocks could pull back if the debates in Washington turn
hostile again and projects the Dow could rally 500 to 1,000
points on a fiscal cliff deal.
Touchstone Sands Capital , with $2.2 billion in assets --
gained 5.45% in November and 23.10% year to date. The No. 1
performing domestic fund for the past month, year, three years
and five years, according to Morningstar, is making big bets on
technology and consumer cyclicals, while shunning real estate and
Its four largest among 27 concentrated holdings areApple (
) andVisa (
). They take up a third of assets.
Frank Sands, CEO of Arlington, Va.-based Sands Capital,
subadvises the fund. His research-intense, bottom-up, investment
process entails finding innovative, industry-leading companies
providing products or services that can't be substituted.
Such companies tend to grow by developing new products and
entering new markets. They must have above-average earnings
growth, competitive advantages, leadership in a promising sector,
financial strength, a clear mission and be priced right. Sands
holds stocks for an average of five years.
Turner Concentrated Growth Investor -- the next best performer
for the month -- returned 5.10% in November and 11.08% year to
date. Like Touchstone, it's heavy on technology and consumer
cyclicals, while light on utilities. Apple is also its biggest
bet, accounting for nearly 15% of assets.
It's heavily invested inLennar (
),CBRE Group (CBG),Las Vegas Sands (LVS) andQualcomm (QCOM).
Portfolio manager Robert Turner picks companies with
accelerating earnings growth, high returns on capital, rising
expectations, strong management, growing market share,
sustainable earnings, margins and revenue growth, as well as new
products or services.
The average foreign mutual fund returned 1.58% for the month
and 13.5% for the year. European funds returned 2.23% and an
impressive 18.04% year to date in light of the debt crisis and
recession. Greece, the No. 1 performing European country in
November, surged 7.03%, paring its year-to-date loss to 3.26%.
Only two countries in the continent ended the month with a loss.
Ireland fell 2.07% and Portugal 2.47%.
"At best, international markets -- including Europe -- have
already priced in the anticipation of growth," Jonathan Citrin,
CEO of CitrinGroup in Birmingham, Mich., with $60 million in
assets under management, wrote in an email. "This is clearly an
asset allocator's market -- one where prices deviate from
fundamentals far too much to feel any sort of confidence in
Japan funds ended nearly flat and have been stuck in sideways
range the past six months. The export-driven economy has suffered
from a confluence of a strong yen weighing on export demand as
well as dampened demand from China's slowing growth and the
A dispute with China over East China Sea islands has sharply
cut tourism between the two nations.
Japan's market as a whole will continue to struggle and remain
lethargic for the rest of the year, said Robert Scharar,
co-manager of Commonwealth Japan with $4 million in assets. He's
targeting companies with significant sales overseas. Commonwealth
Japan was flat in November and down 1.93% year to date, while the
MSCI Japan index returned 2.37% and 0.55% over the same
Emerging-market funds ticked up 1.02% in November and 12.49%
year to date. Emerging economies are expected to grow 5.2% in
2013, after expanding 4.9% in 2012, while developed markets grow
1.1% next year, according to IHS Global Insight.
China funds continued catching up after lagging global markets
most of the year, rising 2.42% for the month. Economic data show
the world's second-largest economy regained its growth momentum
after a summer lull. Its once-a-decade leadership change Nov. 8
sparked optimism of positive economic reforms.
Industrial production, retail sales and exports all rebounded
from their summer lows, while manufacturing expanded in