While the key benchmarks struggled to finish in the green in 2015, mutual funds too had a torrid run. Unlike the 2013 and 2014, the Dow, S&P 500 and Nasdaq failed to hit multiple highs in 2015. In fact, the Dow & S&P 500 had their worst yearly finishes since 2008. In line with this, none of the domestic mutual fund categories finished with double-digit gains in 2015. Only Japan Stock funds from the International Equity Funds category finished 2015 with gains of nearly 12%. The best domestic category, Healthcare mutual funds, could score 8.1%.
Talking of healthcare and other Sector Equity Funds, gains for some of them would have been impossible if the fourth quarter had not been a profitable one. The fourth-quarter gains were larger than what the funds gained in the rest of 2015; thus helping them to better their yearly performances. This was in contrast to the progress of the mutual fund industry in 2015; as the gains only dipped quarter on quarter till the third quarter.
Last year, the markets witnessed the Greek debt negotiation drama, the record surge in US dollar, currency devaluation in China and the China-led global market rout, the plunge in biotech stocks following price gouging concerns, and finally the first rate hike in a decade. Energy prices continued to slump.
Eventually, most mutual funds finished in the red. Among the best gainers were funds that employ the short sell strategy. The bear market funds would have obviously gained as they bet against the market uptrend. Apart from them, certain mutual funds carrying favorable Zacks Mutual Fund Ranks finished with decent gains. Before we identify the best gainers, let’s look into the key areas of 2015.
Billions of Cash Flow Out of Funds
Time and again last year, mutual funds saw significant outflows. On many occasions, outflows hit record highs while inflow data turned worse. For example for the week ending Mar 11, mutual funds attracted $2.1 billion, the weakest in seven weeks. While funds focused on stocks outside the U.S. attracted $5.5 billion, U.S.-focused stock funds lost $4.5 billion. This was the biggest outflow since early February. Soon after, for the week ended Mar 25, the U.S.-based stock mutual funds saw $1.6 billion in withdrawals.
Thereafter, U.S.-based funds witnessed the largest outflows in the week ended Apr 1 since early January. According to Lipper, all Equity funds saw outflows of nearly $4 billion. The massive outflows was a result of domestic stock funds losing out $12.8 billion, while the non-U.S. counterparts provided some support by adding $1.6 billion in new cash.
The second quarter was also indicative of the flagging confidence of the mom-and-pop investors. In the first half of 2015, fund inflow slumped 36% year over year to $143 billion. This significant decline was largely due to the dismal trend in the second quarter; wherein inflows were down to $41 billion through Jun 17, comparing unfavorably with $102 billion of inflows in the first quarter.
Mutual funds that invest in U.S. stocks saw net outflows of $3.45 billion for the week ending Jun 17, accounting for outflows from domestic stock funds for 16 straight weeks. The bleeding continued, and the bloodbath that markets suffered in August turned the events uglier. According to Morningstar data, open-end mutual funds saw outflows of $31.9 billion in August.
Starting from the week ending Nov 11, U.S. stock and taxable-bond mutual funds suffered continued outflows for a considerable number of weeks. Rate hike expectations primarily caused investors to pull money out of these mutual funds. Eventually, bond mutual funds and exchange traded funds saw a record wave of withdrawals during the week the Fed finally decided to hike rates.
Apprehensions over the stability of the bond market compelled investors to pull out $15.4 billion from taxable bond funds in the week ending Dec 16. High-yield junk bond funds saw an outflow of $3.8 billion during the week. This was the largest outflow since Aug 2014. Another record wave of redemptions left investment-grade bond funds lose out $5.1 billion. This was the biggest outflow since Lipper started recording data in 1992.
Fund Performance Keeps Declining
In the second quarter, 41% of mutual funds could manage to finish in the green in the second quarter. This was less than half of 87% gains score by mutual funds in the first quarter. These losses however owed a lot to the selloff on the eve of the quarter's end. However, Greece debt crisis negotiations and other factors continued to bother the markets.
In the third quarter, just 17% of mutual funds managed to finish in the green. Separately, a JPMorgan equity strategy note revealed that 67% of mutual funds underperformed their benchmark in the third quarter. Around 34% of funds underperformed their peers by a minimum of 250 basis points.
The Third-Quarter Rout
The third quarter turned out to be the worst quarter in four years. China-led global growth fears, uncertainty about the Fed rate hike followed by the no liftoff decision, sell-off in biotech stocks and tumbling commodity prices among other factors crushed the markets. Like a pack of cards, the markets from Beijing to Berlin tumbled. Eventually, the quarter ended in massive losses, wherein the performance of mutual funds worsened from the dismal second quarter. The third quarter also included the horrid August performance.
None of the sector equity mutual funds finished in the green in August save Precious Metals equity funds . Moreover, the Healthcare sector, which was a consistent performer since 2014, turned out to be the biggest loser among sector equity funds in August. The best gainer in August turned out to be Bear Market funds, adding a robust 9.1%. This proved the southward direction that markets were taking. The Bear Market funds category was once again the best performer in September, gaining 4.2%.
Fourth Quarter Labored to Improve YTD Return
The fourth quarter however was a sort of a saving grace. The final quarter started on an encouraging note as markets posted their best monthly performance in four years in October. Investors largely ignored weak economic data to focus on positive external signals.
In November, mutual funds managed modest gains against the robust October performance. Small Growth funds were the leading gainers in November, adding 2.8%. 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, with 2.3%, 2.2% and 2% gains, respectively.
December was not impressive and the majority of the fund categories ended in the red. Municipal Bond Funds performed relatively better, and the Bear Market fund category was once again the best gainer, jumping 3.7%.
However, the fourth quarter gains were strong enough to improve the 2015 performance of many fund categories. Technology, Health, Japan, and Large Growth funds were among the top gainers in the fourth quarter, surging 9.3%, 8.3%, 8% and 6.7%, respectively.
Best Fund Categories in 2015
Below we present the top 10 mutual fund category gainers in 2015:
| Mutual Fund Category | 2015 Return (%) |
| Japan Stock | 11.97 |
| Health | 8.05 |
| Foreign Small/Mid Growth | 7.04 |
| Technology | 5.21 |
| Consumer Defensive | 4.15 |
| High Yield Muni | 4.09 |
| Foreign Small/Mid Blend | 3.79 |
| Muni California Long | 3.72 |
| Large Growth | 3.6 |
| Preferred Stock | 3.18 |
Source: Morningstar
The Japan Stock category emerged the best gainer in 2015 as was expected after Japan’s key index Nikkei hit an 18-year high in 2015. The Japan Stock fund category had emerged as the best gainer in the first half of the year as well. The market rout since then dragged down major categories. However, Japan funds were less affected than its neighbors. In late September, Japanese Prime Minister Shinzo Abe had announced the second stage of his popular Abenomics plan. Following this, Japan Stock mutual funds continued to move up.
Coming to the second-best gainer, healthcare funds staged a great comeback in the fourth quarter after slumping 13.7% in the third quarter. Surprisingly, not a single healthcare mutual fund could finish in the positive territory in the July–September period. However, strong gains in the fourth quarter helped the healthcare funds to bounce back.
Foreign Small/Mid Growth was the third-best performer. In 2015, foreign mutual funds performed relatively better than the domestic funds. The year had also started with wider gains for the international category. According to Lipper, the average diversified U.S. stock mutual funds returned 2.5% in Q1, while international funds gained 4.5%. At the end of the first half of 2015, the domination of the non-U.S. fund categories was evident. Apart from the Healthcare funds, there were no U.S. categories in the top 5 gainers’ list in the first half. The small growth fund category managed to grab a place in the top 10, with gains of about 7.9%.
Best Performing Mutual Funds in 2015
Below we present the best-performing mutual funds of 2015, which are under Zacks Mutual Fund coverage. However, we have considered those funds that have a minimum initial investment within $5000 and net assets over $50 million.
| Fund Name | 2015 Return (%) |
| T. Rowe Price Global Technology | 21.3 |
| Matthews Japan Fund | 20.8 |
| Turner Medical Science Lng/Srt Inv | 17.9 |
| Fidelity Select Retailing | 17.1 |
| Wasatch International Growth | 15.2 |
| Oberweis Int'l Opportunities | 15.1 |
| Matthews Korea Fund | 14.9 |
| Oppenheimer Intl Small Company A | 14.9 |
| Eventide Healthcare&Life Sciences A | 14.8 |
| DFA Japan Small Company | 14.7 |
As we can see in the list, T. Rowe Price Global Technology (PRGTX) from the Technology sector outperformed Japan funds to notch the best-performer’s crown in 2015. PRGTX gained 21.3% in 2015 and a Zacks Mutual Fund Rank #1 (Strong Buy) indicates its potential to move up going forward. PRGTX is not only a winner in 2015, but also boasts robust 3- and 5-year annualized returns of 29.2% and 19.8%. Annual expense ratio of 0.91%, as compared to category average of 1.45%, strengthens its return on investment value.
Given that Japan category was the best gainer in 2015, the second spot is taken by Matthews Japan Investor ( MJFOX). MJFOX has gained 20.8% year to date and the 1-year return stands at 19.9%. Another Japan fund that snatched a place in the list is DFA Japanese Small Company I (DFJSX), which gained 14.7%. While MJFOX carries a Zacks Mutual Fund Rank #3 (Hold), DFJSX currently holds a Zacks Mutual Fund Rank #1.
Healthcare category was the second best gainer, justifying the inclusion of Turner Medical Sciences Long/Short Inv (TMSFX) and Eventide Healthcare & Life Sciences A ( ETAHX) in the best performing mutual funds’ list. However, ETAHX currently carries a Zacks Mutual Fund Rank #5 (Strong Sell), while TMSFX has a Zacks Mutual Fund Rank #2 (Buy).
As already mentioned, International funds were relatively better performers in 2015. Thus, it’s obvious to find non-US funds to fill up the other positions in the best gainers’ list. Wasatch International Growth (WAIGX), Oberweis International Opportunities (OBIOX), Matthews Korea Investor (MAKOX) and Oppenheimer International Small-Mid Company A ( OSMAX) were significant gainers and all these funds carry a Strong Buy rank.
Fidelity Select Retailing Portfolio (FSRPX) was a standout gainer. FSRPX won the fourth position with gains of 17.1%. This outperforms the Consumer Defensive and Consumer Cyclical categories’ gains of 4.2% and 1.4% in 2015. FSRPX also carries a Strong Buy rank
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