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Mutual Funds At Midyear And PRIMECAP Picks

We discuss retirement policy statements, moat upgrades, and PRIMECAP picks on this week’s episode.

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Investing Insights: Mutual Funds At Midyear And PRIMECAP Picks


This week on the podcast Russ Kindles mutual fund recap for the first half of the year. Christine Benz on why a retirement policy statement is helpful. Erin Lash names three undervalued dividend payers. Upgrades for Abnett and arrow. Alec Lucas examines two Gold rated prime CAP funds and we share research on globally oriented funds. So let's get started. Here's Ruskin old with the year's winners and losers so far. Hi I'm Christine Benz from Morningstar dot com. Mutual fund investors have seen volatility in both their stock and bond portfolios so far in 2018. Joining me to provide a mid-year recap of the action and mutual funds is Ruskin. He's director of manager research from Morningstar. Russ thank you so much for being here. Glad to be here. Russ let's start by talking about bonds because even though we have a few days to go here in the first half of 2018 it does seem that some of the losses that mutual fund investors have experienced have been concentrated in their bond holdings. First what's going on in the bond world that has led to losses in bond funds. Well we're seeing signs of rising inflation and the Fed is responding by raising rates. And so we're seeing the long end of the bond world sell off in anticipation of more rate hikes and possibly more inflation. You know we've had we've talked about the smooth ride in equities even smoother and fixed in handling shares barely noticed any bumps and so away. And so it hasn't been a disaster but a lot of bond funds are in the red this year.

OK in terms of the types of bond funds that have gotten hit the hardest so far in 2018 where have those last that's been concentrated you mentioned long term has been the hardest hit. That's right. So if you have a long and like Treasury bond or a lot of muni funds are longer term those may be down 1 or 2 percent this year and they're maybe doing the worst emerging market bonds have also done poorly. OK. In terms of the types of bond funds that have held up relatively better can you talk about those up nationally at the other end of the yield curve. So bank loan funds which ratchet up their rates as as interest rates rise and therefore aren't really affected by rising rates. Those are doing the best on ultra ultrashort bonds and short term bonds because obviously they have very little interest rate exposure and then sort of in between the good and the bad is intermediate term bonds which have lost more than than them and they're in the red. About one and a half percent as we speak. But we've got a couple of days left in the month. If investors are looking at their bond holdings how should they be approaching them I think some investors are very fearful about what might be next for the bond market. Right obviously these bonds are more concerned investment maybe a place you go to if you need emergency cash rate. But I do think you should have a plan that allows for these kind of blips. I mean we're talking about for the most part funds that are down 1 or 2 percent. That's really minor.

That's a regular occurrence so you certainly shouldn't be surprised by that and it shouldn't be something that upsets your plan. So I think for sure it signals that there could be some more headaches along the way. And you have to have a robust plan. I think it makes sense to be diversified makes sense to be aware of what kind of credit risk you have because credit risk is something that for the last few years has done really well. But every once in a while it blows up. So you know I think you want to have understand your plan but you should be able to handle these minor blows to to the markets and maybe be careful about taking crazy amounts of duration risk too because you mentioned that that part of the bond market has been hardest hit most recently. That's right. Every once in a while duration risk so long term bonds get hit hard because inflation or interest rates spike. And so you want to be prepared for that.