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3 Best Performing Funds of 1H 2014

Abhijit Ghosh

Benchmarks have tackled macroeconomic concerns from the other side of the pool to snatch significant gains for the first half of 2014. On the domestic front, benchmarks overcame headwinds including harsh winter weather, drop in first-quarter GDP and decline in Treasury yields to close in the green. The Dow Jones Industrial Average (DJI.V), S&P 500 (INX.V) and NASDAQ Composite (:IXIC) boast gains of 1.5%, 6.1% and 5.5%, respectively, for the first half of 2014. The S&P 500 has hit record highs on 22 occasions so far this year. Also, it has the best lead over the Dow since 2009 and the seventh best lead since 1929. 

The S&P 500 and the Nasdaq registered their sixth-straight quarter of gains. Separately, the S&P 500 marked its biggest second-quarter gain since 2009. The blue-chip index too recorded gains in five out of the last six quarters.

Synopsys of Monthly Performance

January – Following a robust Bull Run in 2013, benchmarks began 2014 on a sour note. The beginning of 2014 witnessed three consecutive days of losses that led the S&P 500 to its worst start to a year since 2005. The blue-chip index plunged 5.3%, S&P 500 was down 3.6% and Nasdaq ended the month with 1.7% decline. This was the blue-chip index’ worst start since 2009.

February – The Dow and S&P 500 rose 4% and 4.3%, respectively. The Dow recorded its largest monthly percentage gain since January 2013. The Nasdaq increased 5% for the month, its biggest monthly gain since September 2013.

March – The Dow and S&P 500 rose 0.8% and 0.7%, respectively. In contrast, the Nasdaq lost 2.5%, its worst performance since Oct 2012.

April – The Dow and S&P gained 0.8% and 0.6%, respectively, for the month. The tech-heavy Nasdaq slipped 0.2%.

May – The S&P 500, the Dow and the Nasdaq gained 2.1%, 0.8% and 3.1%, respectively. May’s gains helped the Nasdaq and the blue-chip index turn positive for the year.

June – The S&P 500 registered its fifth successive month of gains. The index gained 1.9% over the month. The Dow and the Nasdaq also gained 0.7% and 3.9%, respectively, over the month.

Major Developments

Political clashes were the major global headlines during this period, while Chinese economic data also guided our benchmarks. Separately, ECB’s monetary stimulus actions kept the markets moving. On the home front, the Fed’s decision and hints regarding the low interest rate environment and trimming of the bond buyback plan were major movers. Economic data was mostly mixed, but the GDP numbers were largely on the negative side.

Federal Reserve

Investors were jittery at the start of the year owing to the second $10 billion cut to the economic stimulus plan. This was among the primary reasons for the benchmarks’ sharp decline in January.

However, assurances by the Fed Chairwoman Janet Yellen about economic recovery calmed the nerves thereafter. In Yellen’s first testimony before lawmakers after taking the Fed chair, she emphasized that interest rates would continue to be low. Later in February, Janet Yellen blamed the harsh winter climate for the weakness in the economy.

In June, markets were positively impacted after the Federal Open Market Committee (:FOMC) allayed fears of near-term rate hikes, but tweaked target interest rate forecasts. Further, the Fed reduced its monthly asset repurchase plan. The asset repurchase plan currently stands at $35 billion a month.

Yellen also provided an impetus to the markets with the comment that the central bank will consider a “wide range of indicators” on the labor market for decisions on rate hikes. She also said: “Economic activity is rebounding in the current quarter and will continue to expand at a moderate pace thereafter”.

Impact of Global Issues


Rising political tension between Russia and the West over Crimea severely affected markets on certain days mostly during March-April. The Crimean crisis had dragged the benchmarks down to their worst fall in over five weeks on March 14.

Russia ignored all warnings from the West to take ownership of the Crimean region. The U.S. President penalized Moscow by freezing personal assets and banning travels for a number of Putin’s allies, as well as forbidding several Russian companies from doing business with U.S. firms. (Read: Russia Mutual Funds to Watch on Ukraine Crisis)


Economic data from China were largely on the negative side from the beginning of this year. In January, the HSBC preliminary survey showed a contraction in China’s manufacturing sector. In March, larger-than-expected decline in Chinese exports of 18.1% year over year raised concerns of a slowdown in the world’s second-largest economy.

Recently, HSBC preliminary manufacturing PMI increased to a seven month high of 50.8 in June. The dismal economic readings had prompted the Chinese authorities to come out with a mini-stimulus package a few months back and the positive effects may have started. China’s government authorities have set a 7.5% GDP growth target, while growth in Q1 came short of that target.


Announcement of stimulus measures by the ECB were welcomed by investors. Benchmarks notched record highs early in June after ECB reduced its key interest rates. The refinancing rate was lowered to 0.15% from 0.25% and the marginal lending facility rate was reduced to 0.40% from 0.75%. ECB also cut the deposit rates to -0.10%; thereby becoming the first central bank to have a negative rate.

Additionally, ECB deployed a series of targeted long term refinancing operations in an effort to boost bank lending to the non-financial private sector in the Eurozone.


The latest concern for the markets has been the sectarian clashes in Iraq. Markets have been negatively affected on certain days in June as investors are concerned about oil supply disruption from Iraq. The al-Qaeda connected Sunni militant group – the Islamic State in Iraq and Syria (ISIS) – has captured key towns in Iraq, where Iraq’s biggest oil refinery is located.

However, the energy sector has been the only gainer from this, as oil prices shot up. Oil prices rose to their highest level in nearly nine months during early June. (Read: 3 Safe Energy Fund Bets amid Iraq Unrest)

The Energy Select Sector SPDR (ETF) gained 5.0% last month while the broader markets remained jittery.

U.S. Economic Data

Nonfarm Payroll Data

A surprise weaker-than-expected US jobs report left investors worried about betting big on equities in January. It was reported in January that nonfarm payroll employment moved up 74,000 in December. This was significantly below the consensus estimate of a gain of 192,000.

However, the nonfarm payroll data has been positive thereafter; suggesting improving labor conditions this year.
According to the U.S. Bureau of Labor Statistics, total nonfarm payroll employment had risen to 113,000 in January. This was short of the consensus estimate of a jump to 189,000. However, unemployment rate had fallen to 6.6%, a five-year low. The lower-than-expected job additions did not affect markets much as investors focused on the drop in unemployment rate.

Nonfarm payroll employment had jumped to 175,000 in February from 129,000 in January. The rise came despite the harsh winter weather. Total nonfarm payroll employment had risen to 192,000 in March. Benchmarks had opened higher on May 2 after the total nonfarm payroll employment was reported to have jumped to 288,000 in April. The economy added the most number of jobs in April since Jan 2012.

Encouraging May’s nonfarm payroll report had also led benchmarks to record highs on Jun 6. Total nonfarm payroll employment jumped 217,000 in May, more than the consensus estimate of a rise by 213,000. Unemployment rate stayed at 6.3% in May.


The third and final data for real gross domestic product ("GDP") shows that the U.S. economy is faltering. The Bureau of Economic Analysis reported GDP shrunk 2.9% in the first quarter of 2014 contrary to the second estimate of 1% decline and the first estimate of 0.1% increase. This is the worst performance in five years. In the fourth quarter of 2013, real GDP had advanced 2.6%.

However, investors ignored the biggest contraction of the U.S. economy in the first quarter since early 2009 as the report did not impact benchmarks negatively the following day. (Read: U.S. GDP Decline: Real or Just a Mirage of Derailing Economy?)

3 Best Funds of First Half 2014

Here we will suggest funds that feature among the top gainers so far this year. 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 have a minimum net asset of $100 million.

Matthews India Investor (MINDX) seeks capital growth over the long term. The fund invests a lion’s share of its assets in publicly-traded Indian stocks and securities. The fund prefers to invest in medium to large size companies, but there is no restriction regarding this.

The non-diversified fund has returned 35.9% year to date.

The fund’s total asset is $583.75 million. Top holdings include Kotak Mahindra Bank Ltd, ITC Ltd and Gujarat Pipavav Port Ltd. All of these companies are based in India.

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

The non-diversified fund has returned 27.2% year to date.

The fund’s total asset is $3.8 billion.

JHFunds2 Real Estate Secs 1 (JIREX) seeks to provide long term growth of capital as well as current income. The fund invests a large proportion of its assets in equity securities issued by real estate investment trusts and companies. Not more than 10% of its assets may be invested in foreign firms.
The non-diversified fund has returned 18.1% year to date.
The fund’s total asset is $542.76 million. Top holdings include Simon Property Group Inc (SPG), Ventas Inc (VTR) and Boston Properties Inc (BXP)

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 at http://www.zacks.com/funds.

Read the analyst report on MINDX

Read the analyst report on PETAX

Read the analyst report on JIREX

Read the analyst report on SPG

Read the analyst report on VTR

Read the analyst report on BXP

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