It has been a surprisingly good year for stocks, ETFs and mutual funds. Year-to-date, the S&P 500 is up about 21% — and you can thank a productive third quarter during which the overall market gained about 6.5%.
The quarter was largely about the Federal Reserve, and its decision to not taper the current level of monetary stimulus being pumped into the system.
As usual, winners and losers emerged that might present opportunities — or might simply highlight a volatile sector that could be ripe for a correction. For the most part, investors are smart to look at mutual fund’s performance over a longer period of time to gain meaningful insight into a fund and the role it might play in a diversified portfolio.
Here is a look at some of the most notable winners and losers among mutual funds in 2013’s third quarter:
Winner: Buffalo Emerging Opportunities
Q3 Performance: +17.5%
Small-cap stocks and riskier issues in general have done exceptionally well, leading the domestic stock market higher for most of this year, including the third quarter.
Buffalo Emerging Opportunities (BUFOX) invests about 65% in microcap names and 33% in small caps, and has performed well over the past few years. Morningstar has given BUFOX a five-star rating, and puts it among the top 1% of category mutual funds during the past five years, returning 19.9% annualized over the period.
Current top holdings include: SPS Commerce (SPSC), MarketAxess (MKTX), Oxford Industries (OXM), Omnicell (OMCL) and iRobot Corp. (IRBT).
Buffalo Emerging Opportunities, which has $322 million in assets, is a no-load fund that charges 1.50% annually, or $150 for every $10,000 invested.
Loser: CGM Mutual
Q3 Performance: +2.6%
Veteran fund manager Ken Heebner apparently still is in the wrong place at the wrong time, even in a market that has rewarded so many stock-pickers in so many areas of the market.
CGM Mutual (LOMMX) has always been marked by uneven performance, but the past few years have been especially challenging. During the past five years, the fund has advanced 3.5% annually, according to Morningstar data, landing in the bottom 1% of its category. Fund assets have declined to $322 million.
Heebner likes to trade — and does so at a blistering pace, with a turnover rate of 325% for the past year. With so many parts in motion, it is really hard to examine exactly what is working or not working in this portfolio. U.S. Treasuries make up 26.5% of the portfolio, with the lion’s share of the rest in stocks. Most recent top holdings included Morgan Stanley (MS), Citigroup (C) and Ford (F).
Heebner has made some great calls in the past, but recently his approach has been totally out of sync with the market.
LOMMX charges 1.12% in expenses.
Winner: Oberweis Micro-Cap
Q3 Performance: +19.7%
In Oberweis Micro-Cap (OBMCX), we have another fund that has done well by occupying the small- and microcap space.
OBMCX is a fine option for aggressive investors that seek out exposure to the smallest of the small. It is composed of about 73% in microcap names, with the balance in small-caps.
Current top holdings include: Medidata Solutions (MDSO), BofI Holdings (BOFI), On Assignment (ASGN), Stamps.com (STMP) and Web.com Group (WWWW).
But be alert — despite the diversification qualities of mutual funds in general, there still is risk to be had here. This mutual fund lost almost 53% in 2008, and is ranked by Morningstar in the bottom 2% of its category in the past 10-year period.
OBCMX charges 2% in expenses.
Loser: Matthews India
Q3 Performance: -2.1%
Matthews India (MINDX) is a good fund investing in a very volatile market, for sure. The portfolio of this fund is comprised of large-cap companies domiciled in India.
The mutual fund gained a whopping 17.3% during the last month to trim its losses substantially, but still sat in the red for Q3. And overall, MINDX is down 14.2% YTD as this market has struggled mightily.
No doubt this stock market, as well as the fund will bounce back, but the timing of this move will be a tough call.
Top holdings include Emami, Sun Pharmaceuticals and Dabur India. Expenses are 1.18%.
Winner: ProFunds UltraChina
Q3 Performance: +59.4%
ProFunds UltraChina (UGPIX) not only has a narrow focus, but also employs leverage to achieve results that can be fantastic — or can lead to horrific losses. The fund attempts to deliver two times the daily performance of the BNY Mellon China Select ADR Index, which includes companies such as China Mobile (CHL), CNOOC (CEO) and Baidu (BIDU).
For most investors, such products do not work well over the long-term but can provide some eye-popping results in the short-term. At 60% in just three months, UGPIX is one of the best-performing mutual funds on the market.
UGPIX charges 1.73% in expenses.
As of this writing, Bill Wysor did not hold a position in any of the aforementioned securities.