Market Overview

3 Mutual Funds With The Best Gains In 2014


In 2014, all the major benchmarks posted solid gains banking on an overall positive economic scenario in the U.S. The Dow, S&P 500 and Nasdaq gained 7.5%, 11.4% and 13.4%, respectively in 2014. The S&P 500 has gained 64% in the last three years. The gains in 2014 came despite international concerns, which were weathered by strength in the domestic economy.

In fact, the S&P 500 had started 2014 with three straight declines, which earned it the unfortunate feat of its worst start to any year in about 10 years. However, domestic events such as strong GDP numbers, improving labor market and Fed's assurance about the economy have helped benchmarks stay in the green and record highs.

Looking at mutual funds, the latest figures from Investment Company Institute's (ETF:ICI) survey of the mutual fund industry suggest that the nation's combined assets increased 1.3% to $15.96 trillion in November.

For investors keen to find out the best performing funds so far this year, we will pick 3 of them based on top Zacks rank, no sales load and a low expense ratio. However before doing so, let's look at the key international developments in 2014 and category performances.

Key International Developments in 2014

Russia: Russia has not been the ideal investment region this year. The Ukraine crisis from the start of this year, followed by standoff with Western countries and the rounds of sanctions have affected the Russian economy. (Read: MH17 Crash, Fresh US Sanctions: Beware of Funds with Russia Exposure). The plight was intensified by the inflation rate and the nosedive of the Russian currency, the ruble, was subjected to. (Read: Russia's Trouble with Ruble Continues: Funds in Focus).

Europe: The Eurozone mostly reported dismal economic numbers in 2014, including the zero growth in the second quarter. In fact, the region's economic power house Germany also looked shaky. Although Germany has been the star performer during the Euro crisis, it was not completely immune to the regional factors that influence the economic parameters. (Read: Germany Intensifies Eurozone's Recession Woes: 3 Funds to Sell).

Japan: Japan's economy entered a technical recession after GDP declined 1.6% in the Jul-Sep period. This was possibly a result of a hike in consumption tax in April from 5% to 8%. Subsequently, the Bank of Japan announced that it will step up asset purchases to 80 trillion yen on annual basis. (Read: Japan Equity Funds Attract $1B on Snap Election and Sales Tax Delay).

Fund Category Performance

Looking at the category performance data, Morningstar confirms that India equity funds have gained 44.6% year to date in the International Equity Funds category and was the biggest gainer in 2014 among all categories. It was followed by Trading-Leveraged Debt, Real Estate, Health and Long Government categories. They boasted gains of 33.4%, 28%, 27.2% and 21.7%, respectively.

India funds seem to have led the gains so far this year. Investing in India has been very profitable this year. The country's key benchmarks, Sensex and Nifty, have touched all-time highs repeatedly this year. The upsurge is good news for funds that focuses on Indian companies. (Read: Stay Invested in India Mutual Funds on Bullish Growth Expectations).

India funds, being the best gainer, are also the biggest gainer among the non-US equity mutual funds. However, there are economies that have seen strong gains for their benchmarks. Despite China's economic challenges, the benchmark Shanghai Composite has gained over 40% year to date. (Read: 3 Top Performing Non-US Equity Mutual Funds in 2014)

Among the sectors, real estate funds have led the year-to-date gains followed by healthcare. The following chart depicts the performance of the Sector Equity Funds.

 Sector Equity Funds Returns
YTD (%) 3 Year (%)
Real Estate 28.03 15.23
Health 27.25 31.28
Utilities 17.08 13.89
Technology 12.55 19.69
Global Real Estate 11.67 14.58
Consumer Defensive 10.41 16.66
Industrials 8.61 22.12
Energy Limited Partnership 7.93 10.92
Consumer Cyclical 6.28 21.06
Financial 4.78 20.21
Communications 0.69 13.33
Miscellaneous Sector -0.18 22.47
Equity Precious Metals -10.03 -25.19
Natural Resources -12.48 -0.36
Equity Energy -16.65 1.05

Source: Morningstar

As for the sectors, Real Estate emerged as the top gainer, in a year marked with mostly improving housing market. Most homebuilding companies have been witnessing average price increases across all operating regions. This has been mostly driven by a shift to higher-priced homes as well as market driven price increases. (Read: 3 Top Performing Real Estate Funds in 2014).

Utilities sector too ended the year on a positive note and ranked third. The biggest positive as well as the fundamental strength of the utilities is that there is hardly any viable substitute for their services. The global invasion of electrical gadgets and therefore the endless need for electricity and utility services is an added advantage. (Read: 3 Top Performing Utilities Mutual Funds in 2014).

3 Best Performing Funds in 2014

Here we will suggest funds that feature among the top gainers in 2014. They also carry Zacks Mutual Fund Rank #1 (Strong Buy). 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 performances, but the likely future success of the fund.

These funds also have relatively low expense ratios and carry no sales charges.

Matthews India Investor (MINDX) seeks capital growth over the long term. The fund invests a lion's share of its assets in stocks and convertible securities of firms based in India. Though the fund invests in companies of all sizes, the adviser expects the fund to invest in mid to large-cap companies.

The fund has returned 63.9% year to date. The fund consistently gained throughout 2014. The fund has an annual expense ratio of 1.13% as compared to category average of 1.72%.

PIMCO Real Estate Real Return Strategy D (PETDX) seeks to provide maximum real return. The fund invests in real estate-linked derivatives and a basket of inflation-indexed securities to achieve its investment objective. It also invests in Fixed Income Instruments including bonds and debt instruments issued by domestic or foreign public and private sector entities.

The fund has returned 38% year to date. The fund consistently gained till Sep 2014. However, the fund started trending up again from October. The fund has an annual expense ratio of 1.14% as compared to category average of 1.33%.

Fidelity Select Electronics Portfolio (FSELX) seeks capital growth. The fund invests a lion's share of its assets in companies whose primary operations are related to electronic components, equipment vendors to electronic component manufacturers, electronic component distributors, and electronic instruments and electronic systems vendors. Investments are made in both domestic and foreign companies. The fund uses fundamental analysis to select companies for investment purposes.

The fund has returned 38.4% year to date. The fund consistently gained till Jul 22, after which it suffered a momentary drop till Aug 7. The fund gained again but slumped 14.6% between Sep 12 and Oct 13. However, the fund trended up following that. The fund has an annual expense ratio of 0.79% as compared to category average of 1.55%.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank in our Mutual Fund Center.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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