The mid-year is an excellent time to evaluate the best Mutual Funds opportunities for investment and consider mid-year corrections that can improve results for the second half of the year. In doing so, one must consider factors that may affect stocks and bonds such as news events and overall economic conditions. While news events undeniably can affect financial markets, predicting which event will have an impact is risky. Further, predicting the nature of the impact adds another element of risk.
Overall Market Conditions
The U.S. stock markets performed well in the first half of the year. By broad measures such as the S&P Index of 500 stocks, the market rose substantially at about 6.5%. The overall U.S. economy showed positive GDP growth, and various indicators were robust such as the overall upward trend in private sector jobs.
The markets often show that trends can be misleading. The emerging markets sector of mutual funds and investors generally saw a large drop in January, which followed several years of lower than expected results. At that point, many investors walked away from emerging market mutual funds and investments. In February, the sector began a remarkable climb and since has erased the January loss and risen steadily. Many conservatively managed Mutual Funds have substantial amounts of assets in cash, some as high as 40%. Well positioned to make mid-year adjustments, these funds move cash into higher paying investments. Some have recently moved into investments in emerging market stocks.
A revealing story in the Wall Street Journal centered on two successful mutual funds and the very different ways they decided to purchase the same scientific research company stock. One fund manager detected a pattern of company insiders buying large amounts of company shares, far more than would result from options and bonuses. This triggered a further look and a buy decision. The second fund manager selected the stock based on a vast potential market for growth upon development of the company’s primary technology. The science company stock rose over the first half to provide a remarkable profit or equity. The case study indicated that there is no particular best or better way to select a stock; there are many ways to pick winners.
Socially Responsible Investing
Those who wish to reflect personal values in investment decisions can enjoy financial success too. Among the leading funds are several which emphasize investment in sustainable enterprises and renewable economic activities. Emerging markets can contribute to these goals, and the recent upturn in that sector includes many sustainable investment opportunities.
News and World Events
Among major global components, economic trends varied but were overall positive in the first half of the year. Positive news included China continued to reform its economic dependence on exports by strengthening its domestic consumer sector. The EU entered into cooperative agreements with Ukraine and two other former Soviet Republics raising prospects for future growth. Central Europe continued an expansion into alternative energy to reduce dependence on imported natural gas supplies. However, political and news events can be powerful, disruptive, and difficult to predict.
Among international concerns, the sudden political turmoil in Iraq has connected an ongoing crisis in Syria. The impact on oil markets has already registered as a round of substantial price increases ahead of fears of supply issues. In another set of events, the relationship between Russia and the Ukraine continues as a market factor. By its aggression in Crimea and Eastern Ukraine, Russia has brought a powerful set of sanctions upon itself. The Russian economy has lost traction and reports lower than expected growth. The IMF has issued information suggesting an abrupt diminished level of growth. Many mutual funds including World Bond funds mix a significant amount of foreign large growth assets. These funds will watch events and news in Russia closely.