A Market Thrill Ride
Mutual fund investors were taken on a roller coaster in the first quarter, including a stomach-churning sell-off in late February driven by fears over a slowing economy. But by mid-March, the stock market had righted itself, and the ride proved to be worth the admission.
By quarter's end on March 31, the average domestic stock fund was up 2.2 percent, according to the fund tracker Morningstar. "It was, to say the least, an extraordinary three months for investors," says Bob Doll, global chief investment officer for equities at the investment management firm BlackRock.
This marked the third straight quarter of positive gains for U.S. stocks. Yet again, funds that invested in foreign equities did better than domestic portfolios, returning 3.3 percent. A weakening dollar helped increase the value of foreign stocks held by U.S. investors.
Top regions. The best performers included Latin American stock portfolios, which rose 4.4 percent in the quarter, and European funds, up 4.2 percent. Over the past three years, Latin American funds have soared 43.9 percent annually, while European stock funds jumped 22.9 percent a year.
Among domestic funds, the best performers were those in the utility sector. They soared 7.8 percent on average in the quarter. Natural-resources funds also shined, as oil prices rose again after stabilizing late last year. The one loser was financial services, with the average fund in that sector falling 1.8 percent, amid worries over the slowing economy and growing troubles in the subprime mortgage market.
Meanwhile, concern over the economy drove investors back into bonds. This helped the average fixed-income fund gain 1.6 percent in the first quarter. Over the past 12 months, the average taxable bond fund has returned 6.6 percent, not far behind the 8.1 percent gains for stock funds during this stretch.
This story appears in the May 7, 2007 print edition of U.S. News & World Report.