by Tom Taulli | July 6, 2011 11:51 am
The second quarter was tough for investors. Even top-notch hedge fund operators — like John Paulson — sustained big losses.
Then again, the quarter saw lots of geopolitical events, such as continued unrest in the Middle East as well as the debt crisis in Greece. There was also volatility in commodities, especially with oil. However, by the end of the quarter, the equities markets staged a nice rally, suggesting the markets had been oversold.
Yet there were still some mutual fund categories that sustained a good amount of damage. For example, natural resource funds were off by nearly 5% and financial funds had an average loss of 3.5%.
Despite this, there was overall strength in defensive sectors. To this end, utilities funds were up 4%, consumer staples funds gained 4.6% and real estate funds rose by 5%. In addition, health care funds spiked 7.5%.
So which funds were standouts in the quarter? Let’s take a look:
Fidelity Select Health Care (FSPHX)
Looking at the next couple decades, the prospects look bright for health care stocks. In the U.S., Europe and even China, the populations are aging rapidly. This trend should mean continued growth in demand.
However, governments are going to be feeling the pressure — and this means finding ways to cut costs. This is a good thing for Eddie Yoon, who is the portfolio manager of the Fidelity Select Health Care Fund. He looks for companies that find cost savings and create innovations. Often, these are software operators, which tend to be small- and medium-caps.
Thus, the fund has the potential to generate large returns. So far this year, the gain is a hefty 15.2%.
Vanguard Consumer Staples (NYSE:VDC)
When it comes to consumer staples mutual funds, there are not many to choose from. But there is an exchange-traded fund that has shown lots of promise: the Vanguard Consumer Staples ETF. It is based on the MSCI U.S. IMI Consumer Staples 25/50 index, which has companies like Proctor & Gamble (NYSE:PG), Coca-Cola (NYSE:KO), Philip Morris (NYSE:MO), Wal-Mart (NYSE:WMT) and PepsiCo (NYSE:PEP).
For the year, the return for the fund is 8.9%. The expense ratio is also fairly low, at 0.2%, while the yield is 2.4%.
MFS Utilities I (MMUIX)
Utilities have the reputation as being boring investments, but this can be good for long-term returns. Utilities generally have strong barriers to entry and generate substantial income.
And one of the top mutual funds in the sector is MFS Utilities I, which has $4 billion in assets. Consider that over the past 15 years the average annual return was 11.9%.
It helps that the fund has an expansive view of its mandate. For example, it invests in cable companies and telecom operators. The fund has also been savvy in foreign markets.
Cohen & Steers Realty Shares (CSRSX)
While the headlines continue to be awful for real estate, the industry has actually been providing nice gains for investors. Then again, the industry is massive, including apartments, office buildings, hotels, etc.
A way to play this is the Cohen & Steers Realty Shares fund, which has $3.7 billion in assets. The portfolio managers, which include Martin Cohen and Robert Steers, are legends in the real estate market. They are value investors and do extensive cash flow analysis.
Some of the top holdings include Simon Property (NYSE:SPG), Equity Residential (NYSE:EQR), Vornado Realty (NYSE:VNO) and Public Storage (NYSE:PSA).
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
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