ETF & Mutual Fund Updates for June 15, 2016

The Federal Reserve held interest rates steady today and revised its forecast for increases. The Fed cites slowing wage growth and low inflation, despite the strengthening economy. The odds of a July rate hike briefly fell to zero percent in the futures market following the FOMC statement.

Fidelity Blue Chip Growth (FBGRX)

Technology stocks pulled back with the broader market over the past week. Microsoft’s (MSFT) buyout of LinkedIn (LNKD) propped up Internet funds, especially Global X Social Media (SOCL) which has a hefty position in LNKD. Shares of LNKD gained 46 percent following the announcement. Microsoft shares, however, fell on the announcement, leading to a net drag on returns for most funds this week.

Vanguard Global Minimum Volatility (VMVFX)

The chart below compares the price of VMVFX to the price of Vanguard Global Equity (VHGEX) and the U.S. Dollar Index. Investors have recently shifted assets in anticipation of a stronger U.S. dollar, leading VMVFX to greater outperformance than currency influences account for. The U.S. Dollar Index gained about 1.6 percent last week, but VMVFX outperformed VHGEX by 2.2 percent.

Fidelity Select Biotechnology (FBIOX)

Biotechnology shares have been in an uptrend since February and FBIOX has beaten the passive ETF iShares Nasdaq Biotechnology (IBB), but the rebound remains subdued. The second chart shows the year-to-date performance of FBIOX versus SPDR S&P 500 (SPY), illustrating a quicker pace of recovery for the broader market.

Vanguard Dividend Appreciation (VIG)

A falling stock market and falling interest rates were positive for large-caps and dividend paying shares over the past week. The stratification of index returns were predictable. Small-caps suffered the largest decline and the Dow Jones Industrial Average turned in the best return. Dividend payers fared even better, with VIG down only 0.99 percent over the past 5 days.

Fidelity Floating Rate High Income (FFRHX)

Stocks have had a choppy 2016 and many bond funds are outperforming. FFRHX has beaten the S&P 500 Index through June 14. FFRHX leans towards higher yield credit, while Thompson Bond (THOPX) favors corporate debt. DoubleLine Core Fixed Income (DLFNX) has held up well under manager Jeff Gundlach’s long bond predictions. Fidelity Corporate Bond (FCBFX) has been among the best performing bonds this year due its exposure to investment-grade corporate bonds. Treasury yields are near their 2016 lows, making higher yielding corporate bonds more attractive. More importantly for corporate bonds this year is the improvement in sentiment. Investors are still wary of high yield debt, with energy exposure still a concern after oil hit $50 a barrel, but concerns about highly rated corporate debt have evaporated in the face of solid economic growth.

Value vs Growth

Value funds with traditional value exposure continue to outperform growth. There is a lot of variation between funds, particularly when it comes to value. Measured by Vanguard’s growth and value ETFs; the two have been in a stalemate since February. In contrast, Fidelity Value (FVLKX) has been steadily beating FBGRX since late January.

Global X MSCI Nigeria (NGE)

Nigeria isn’t a major player in the world markets, but the decline of NGE this week is a sign of ongoing risk emanating from the energy market. The Nigerian central bank was forced to abandon its dollar peg this week. The official exchange rate was about 200 naira to 1 dollar, but the market is now trading the currency around 350 naria to 1 dollar. As a result, the price of NGE, which holds stocks valued in naira, has cratered.

Economic turmoil in Venezuela and even well-managed Saudi Arabia face similar issues. Many nations will eventually abandon currency pegs if oil prices fall again, or remain low for far longer than expected.

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