Markets

Best Performing Mutual Funds in November

Mutual funds managed modest gains in November against the robust October performance. The best gain of 2.8% last month was scored by Small Growth funds. As for the broader markets, the S&P 500, the Dow and the Nasdaq gained 0.1%, 0.3% and 1.1%, respectively.

Benchmarks ended in the green in November, buoyed by gains in the financial and energy sectors. Encouraging third-quarter earnings reports, and stepped-up merger and acquisition activity lifted investors' spirits. However, the announcement of the mega deal between Pfizer and Allergan plc failed to spread cheer.

Strong auto sales data and a better-than-expected ISM Services Index reading helped the benchmarks to finish the month in the green. Additionally, benchmarks gained after the minutes from last month's Fed meeting confirmed that "most participants" were open to a rate hike in December.

Among the negatives, multiple terrorist attacks in Paris, greater violence in the Middle East, news of the shooting down of a Russian fighter jet near the border of Syria and concerns about China's economic situation dented investor sentiment.

Mutual Fund Category Performance

Small Growth funds were the leading gainers in November, adding 2.8%. Small-cap mutual funds dominated, as Small Blend and Small Value categories also featured in the top 10 performers' list. They gained 2.2% and 2%, respectively. In fact, small and mid-cap categories outperformed large-cap funds in November as Mid-Cap Growth and Mid-Cap Value funds occupied the ninth and tenth ranks with 1% and 0.7% gains, respectively.

The other noticeable factor this time was the return of certain sector equity funds among the top gainers. Financial, Health and Technology sectors were the top gainers, gaining 2.3%, 2.2% and 2%, respectively.

Top 10 Gainers in November
Mutual Fund Categories Return (%)
Small Growth 2.83
Managed Futures 2.56
Financial 2.32
Small Blend 2.23
Health 2.22
Technology 2
Small Value 1.95
Japan Stock 1.34
Mid-Cap Growth 1.03
Mid-Cap Value 0.74

Source:Morningstar

However, these gains were modest in contrast to the October performance. In October, Equity Energy funds topped with gains of 10.4%. The tenth-ranked Large Blend funds had scored 7.5%. October's best gainer Equity Energy funds lost 1.6% in November. In fact, November's worst loser, Equity Precious Metals which was down 8.2%, was among the top 10 gainers in October. Below we present the top 10 losers in November:

Top 10 Losers in November
Mutual Fund Categories Return (%)
Natural Resources -2.08
Global Real Estate -2.4
India Equity -2.52
Diversified Emerging Mkts -2.52
Latin America Stock -2.83
Utilities -2.84
Commodities Broad Basket -6.19
Commodities Precious Metals -6.84
Energy Limited Partnership -8.02
Equity Precious Metals -8.24

Source:Morningstar

FOMC Minutes and Rate Hike Hopes

Through November, the markets remained hopeful that the US central bank may finally decide to hike rates in December. Backing this belief were multiple comments from key Fed officials and the FOMC minutes.

Several Fed officials pointed toward a series of rate hikes at a moderate pace. Atlanta Fed President Dennis Lockhart stated that he was "comfortable" with a rate hike "soon." Fed vice chairman Stanley Fischer mentioned that "some major central banks" could quit the near-zero interest rate policy "in the relatively near future." New York Fed president William Dudley and St. Louis Fed president James Bullard also made similar comments.

Minutes from the Federal Open Market Committee's (FOMC) meeting in October stated that most officials anticipated the conditions required to hike short-term interest rates "could well be met by the time of the next meeting" in December. The Fed is waiting for further improvements in the labor market conditions and inflation to touch its target rate of 2%. Fed officials with a hawkish stance also said that further delay in raising rates will show lack of confidence in the economy.

Earnings Results

In the opening week, encouraging third-quarter earnings reports from companies including The Clorox Company, Michael Kors, Facebook and Ralph Lauren had a positive impact on benchmarks.

Retail earnings dominated proceedings at the latter half. Discouraging earnings results from departmental stores including Nordstrom and J.C. Penney, and Macy's affected investor sentiment. On the other hand, encouraging quarterly earnings from Wal-Mart and Home Depot boosted the broader markets. Abercrombie & Fitch, Ross Stores, Foot Locker, NIKE, Amazon, McDonald's, BJ's Restaurants and eBay also impressed with their earnings announcements.

Jobs Data

The U.S. Department of Labor reported that the economy generated 271,000 nonfarm payroll jobs in October, witnessing its biggest monthly gain since Dec 2014. It also surpassed the consensus estimate of 182,000. The unemployment rate declined to a seven-and-a-half-year low of 5% last month from 5.1% in September. Moreover, the report showed that the average hourly earnings increased 9 cents in October to $25.20 after rising only 1 cent in the prior month. It also registered a 2.5% year-on-year gain, recording its biggest rise since the recession in 2008.

Some Fed officials welcomed October's strong jobs report. In an interview, Chicago Federal Reserve President Charles Evans said that the report brings "very good news" and "strong wage growth would be a very helpful ... pushing inflation up to 2 percent," which is what is needed." Though he stated that "we've indicated that conditions look like they could be ripe of an increase," he remained concerned "about downside risk with the weak foreign economy."

GDP Data

The U.S. Department of Commerce reported in its "second" estimate that the economy grew at a pace of 2.1% in the third quarter, compared to the earlier projected growth rate of 1.5%. Also, the third-quarter growth rate came in higher than the consensus estimate of 2% growth.

An upward revision in business inventories emerged as the main reason behind the expansion in the quarter. Business inventories were revised upward from $56.8 billion reported in "advance" estimate to $90.2 billion. However, third-quarter growth remained below second-quarter's rate of 3.9%.

Mergers & Acquisitions

Merger and acquisition news including that between Dyax and Shire plc, and Treehouse Foodsand ConAgra Foods boosted investor sentiment.

The big merger and acquisition news in the month was that between the Viagra maker Pfizer and Botox maker Allergan plc. Pfizer will pay $155 billion, and the deal will create the world's biggest drug maker by sales. Pfizer will be based in Ireland, helping it reduce the tax bills or what is seen as one of the biggest tax inversions. Pfizer expects the combined firm to have an adjusted tax rate between 17 and 18%, well below its current 25% rate.

Best Performing Funds in November & Funds to Buy Now

The chart below shows the top gainers in November:

Top 5 Funds November Gains
Eventide Healthcare & Life Sciences Fd ( ETAHX ) 13.71%
Profunds Ultra Japan Service Class ( UJPSX ) 10.37%
Jacob Small Cap Growth Fund Investor Class ( JSCGX ) 10.29%
Direxion Monthly Small Cap Bull 2X Fund ( DXRLX ) 10.10%
Profunds Ultra Small-Cap Investor ( UAPIX ) 10.10%
Rydex Dynamics Fds Russell 2000 2X Strat ( RYRUX ) 10.06%

However, these funds may not be potential investment instruments now. On that note, below we highlight 3 mutual funds that enjoyed encouraging gains in November and are still good bets.

We have narrowed our search based on Zacks Mutual Fund Rank . The following funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect the funds to outerperform its 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 the likely future success of the fund.

The minimum initial investment for these funds is within $5000 and the funds have at least $50 million of assets under management.

Fidelity Select Biotechnology Portfolio ( FBIOX ) invests a large share of its assets in companies primarily involved in research, development, manufacture and distribution of various biotechnological products. Factors such as financial strength and economic conditions are considered for investment in companies anywhere in the world.

FBIOX currently carries a Zacks Mutual Fund Rank #1. In November, FBIOX gained 5.8%. Year to date, FBIOX has jumped 14.5% and is up 17.1% in 1 year period. The 3- and 5-year annualized returns are 36.5% and 34.7%, respectively.

T Rowe Price Global Technology Fund ( PRGTX ) invests most of its assets in the common stocks of companies across the world that derive their revenues from the development, advancement and use of technology. PRGTX invests in a minimum of 5 countries and a minimum 25% of its assets are invested in foreign companies. PRGTX invests in firms with an established track record.

PRGTX currently carries a Zacks Mutual Fund Rank #1. In November, PRGTX gained 4.2%. Year to date, PRGTX has jumped 21.4% and is up 17.9% in 1 year period. The 3- and 5-year annualized returns are 29.2% and 21.3%, respectively.

Fidelity Select Software & Comp Portfolio ( FSCSX ) invests the lion's share of its assets in companies whose primary operations are related to software or information-based services. Investments are made in both domestic and foreign companies.

FSCSX currently carries a Zacks Mutual Fund Rank #1. In November, FSCSX gained 2.5%. Year to date, FSCSX has jumped 12% and is up 13% in 1 year period. The 3- and 5-year annualized returns are 23.9% and 18.1%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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