of the mail that’s arriving from your 401(k) or other
you open it, red ink is likely to pour out of the
envelope and may soil your view of your financial
any mutual fund or exchange-traded fund that contains
stocks became a loser in the third quarter of this year.
The average fund that invests in the stocks of large
U.S. companies lost about 7.5 percent during the last
three months, and funds that invest in small company
stocks plunged about 11 percent, according to
add insult to injury, if you believed in the popular
themes of the last couple of years, the hurt has
probably been worse than it had to be. Your protection
from stock market losses during the last three months
would have been to own a sizable portion of U.S.
Treasury bonds. But the theme of the last few months has
been to dump those bond funds because they were expected
to become losers.
advisers were convinced that the Federal Reserve was
about to start raising interest rates in September. And
those interest rate increases would have been harsh on
Treasury bond funds, turning them into losers. But it
didn’t happen. The Federal Reserve instead looked at
the dangers building in the global economy and decided
the risks could infect the U.S. Already, U.S. company
profits are hurting from global pressures and turning
stocks of industrial, technology, energy and basic
material companies into losers. So the Fed continued to
keep interest rates near zero. As a result, U.S.
Treasury bonds, and the mutual funds that contain them,
ended up climbing in value, not losing.
average mutual fund that invests in long-term U.S.
Treasury bonds climbed about 5.7 percent during the last
three months. The funds did exactly what they were
intended to do in portfolios — to provide protection
for investors during times of worry in the stock market.
the bond funds that investors added to portfolios when
they were worried about rising interest rates turned out
to damage, not protect, investors. High-yield bond
funds, a popular choice for people weary of low interest
rates and worried about the Federal Reserve, got smacked
last quarter right along with stocks. High-yield bond
funds invest in the bonds sold by struggling U.S.
companies. The funds inflicted losses of 4.5 percent
because struggling companies are dangerous when the
economy is weak. Under such circumstances, struggling
companies have trouble selling products and can end up
failing to pay bond investors back on their high-yield,
or "junk," investments.
plunge in high-yield bonds could be a rude awakening for
investors who thought bonds would protect them from
stock market troubles. Typically, high-yield bonds act
like stocks — falling in value when worries about the
another theme of the last few years injured investors
greatly. Emerging markets were believed by many advisers
to be the area of the world that would gain considerably
as countries like China, Brazil and Russia modernized
and grew. But this year, the trend of fast growth went
into reverse. China’s economy is growing far less than
the last few years, and Brazil and Russia are in
emerging-market mutual funds that invest in developing
areas such as Asia and Latin America have turned into a
disaster. Emerging markets on average lost 18 percent
last quarter and 20 percent during the last year,
according to Morningstar. Funds that invest specifically
in Latin American countries have been even worse because
many countries, like Brazil and Venezuela, depend on
selling oil and basic materials to the rest of the
world. With the second-largest economy in the world —
China — slowing, Latin American companies haven’t
been able to sell the quantities of oil and basic
materials that they must to Asia. Latin America stocks
plunged 23 percent last quarter and 38 percent for the
areas of the world, such as Europe and Japan, didn’t
encounter nearly the same level of losses. But Europe is
down about 10 percent and Japan down about 13 percent.
the U.S. stock market, the only winning fund type during
the last quarter was those that invested in utility
stocks. The funds climbed 3 percent, as people chose an
industry that’s favored as a defensive play during
risky times. Another supposedly defensive choice —
health care companies — plunged 11 percent when
presidential candidate Hillary Clinton called for drug