by Tom Roseen.
Despite the increasingly acrimonious divide between the two major U.S. political parties, staffing shake-ups in the White House, and increased geopolitical tensions over the last year, the U.S. mutual fund business has flourished considerably since the election of President Donald Trump back on November 8, 2016—in both growth of assets under management and performance. While investors continue to cheer the better-than-expected Q3 2017 earnings reports, many still appear to be banking on the sweeping tax reform and infrastructure development promised by the current administration.
For the one-year period ended September 30, 2017, U.S. mutual funds’ (including ETFs’) total net assets (TNA) under management increased $2.9 trillion (+16.06%) from $18.2 trillion to $21.1 trillion. TNA for equity funds (increasing $2.0 trillion) witnessed the largest absolute increase of the six broad-based asset types, jumping 21.60%. Commodity funds (sliding $8.1 billion) and alternatives funds (falling $2.0 billion) experienced the only declines in TNA.
Performance has been the primary contributor to asset accretion since the 2016 presidential election. Since September 30, 2016, mutual funds have attracted some $691.2 billion, with passively managed funds (+686.0 billion) attracting the lion’s share of estimated net flows. Over the period investors appear to have favored bond funds over other asset types, injecting $337.2 billion into their coffers, with somewhat equivalent amounts entering passively managed bond funds (+$191.3 billion) and actively managed bond funds (+$145.9 billion). However, for the next largest attractor of investor assets (equity funds, +$262.6 billion), investors’ predilection for passively managed equity funds (+$498.5 billion) eclipsed that for actively managed equity funds (-$236.0 billion).
Even though investors have been bidding up risky assets in spite of a more hawkish U.S. Federal Reserve Board and recent interest rate hikes, even bond funds have managed to remain in the plus column over the period. The average mutual fund (including all asset types) posted a one-year return for the period ended October 3, 2017, of 15.91%. The emerging markets funds (+27.04%), U.S. diversified equity funds (+26.72%), and developed international markets funds (+25.39%) macro-groups all posted one-year returns in excess of 25%, while the sector equity funds (+16.92) and mixed-asset funds (+16.34%) macro-groups also chalked up double-digit returns.
As one might expect given the strong performance in equity securities and the power of leverage (both upward and downward), the Equity Leverage Funds classification posted the strongest one-year return of Lipper’s 155 classifications, rising 51.74%, followed by Global Science/Technology Funds (+46.42%), and Science & Technology Funds (+41.46%). At the bottom of the pile bear-oriented funds and commodities-related funds were the laggards for the period, with Dedicated Short-Bias Funds (-28.40%), Precious Metals Equity Funds (-14.26%), and Commodities Agriculture Funds (-10.90%) taking it on the chin.
On an individual fund basis 12 of the 15 top one-year performers were warehoused in Lipper’s Equity Leverage Funds classification. The two top individual funds posted eye-popping returns in excess of 277%: Rex VolMAXX Short VIX Weekly Futures Strategy ETF (VMIN, +300.72%, housed in Lipper’s Alternative Managed Futures Funds classification) and Direxion Semiconductor Bull 3X Shares (SOXL, +277.46%, housed in the Equity Leverage Funds classification).
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