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Funds in the first quarter: Foreign markets were first

By The Associated Press

NEW YORK (AP) — Anyone with an American-only 401(k) account missed out in the first quarter.

Funds that own stocks from Latin America, Asia and other foreign markets were some of the best performers during the first three months of the year. Hundreds had returns that were more than double those of the most popular U.S. stock funds, which were no slouches themselves. The largest U.S. stock fund had one of its best quarterly performances in years.

It was all part of a strong start to the year for funds in general. Not only did stock funds of all types power higher, so did bond funds. Just over 93 percent of all the funds tracked by Morningstar had positive returns in the first quarter, as of Wednesday.

Fortunately, more investors seem to have taken advantage. Money poured into stock funds in the final months of 2016, mostly focused on the U.S. market due to excitement that a Republican-led Washington would usher in business-friendly policies.

Here’s a look at the trends that helped shape the quarter for mutual funds and exchange-traded funds. All of the return figures are through Wednesday.

— FOREIGN LED THE WAY

For years, foreign stock funds did nothing but frustrate. Every peek higher would inevitably give way to another tumble, and the largest foreign-stock fund returned less than 1 percent annualized for the decade through 2016. What made the ride even more frustrating was that U.S. stocks nearly doubled over the same time, after including dividends.

Even with the mediocre performance, many investors continued to buy foreign stocks, looking for ways to diversify their portfolios. Yes, U.S. stocks had been on top for a long time, but they likely couldn’t stay that way forever. And foreign stocks were looking cheaper than their U.S. counterparts by several measures, following the split in performance.

That patience was rewarded in the first quarter, and Vanguard’s Total International Stock Index fund returned 9.2 percent for its best quarter in nearly four years. Returns were even bigger for the types of funds that have been the most frustrating recently: those that invest in emerging markets.

The dollar’s falling value in the first quarter helped, because it meant returns denominated in South Korean won or Mexican pesos were worth more in dollars. The MSCI Emerging Markets index returned 8.8 percent in their local currencies, but 13 percent in dollar terms.

— STILL STRONG IN THE US

Foreign stock funds may have overshadowed their U.S. counterparts, but both delivered in the first quarter.

The largest U.S. stock fund returned 5.6 percent, for example. That’s the second-best performance in the last three years for Vanguard’s Total Stock Market Index fund.

The job market continues to improve, and optimism has been surging for shoppers and businesses. Corporate earnings, meanwhile, are on the rebound, which has helped push stock prices higher. In the background have been hopes for help from Washington, such as cuts in taxes and looser regulations for businesses.

Funds that own larger stocks generally had better returns during the quarter than smaller-stock funds. Managers who focus on stocks with the fastest sales and earnings growth were also particularly strong.

Transamerica’s Capital Growth fund returned 16.3 percent, for example, one of the top performances for U.S. stock funds in the quarter. Three of its five biggest investments jumped more than 20 percent during the quarter: Facebook, Illumina and Tesla.

— BOND FUNDS CHUG ALONG

Many investors were bracing for losses from their bond funds as the calendar flipped into 2017.

That’s what happened at the end of last year, after all. The average intermediate-term bond fund, which forms the core of many portfolios, lost 2.5 percent in the fourth quarter as interest rates jumped. When rates rise, prices for existing bonds fall because their interest payments are less attractive than those of newly issued bonds.

And rates rose sharply late last year on expectations that the Republican sweep of the White House and Congress would lead to faster economic growth and inflation. The Federal Reserve is also back to raising interest rates, after keeping them at a record low for seven years following the 2008 financial crisis.

But even after the Fed raised rates at its most recent meeting a couple weeks ago, rates actually sank. The Fed has stressed that it plans on moving gradually and modestly, perhaps even more so than many investors had been expecting. If it follows that script, bond fund managers say losses may not be inevitable.

The average intermediate-term bond fund returned 1.1 percent during the first quarter. While that’s off from earlier years, when 2-percent quarterly returns would sometimes occur, it’s also far from the big losses that some investors were anticipating.

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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