Best Mutual Funds And ETFs Succumb To Increased Volatility

Stock markets succumbed to increased volatility, rising inflation and climbing rates, posting the steepest declines since the Covid-19-induced losses of March 2020. Many of the best mutual funds and ETFs gave up some of their third-quarter gains and then some, despite seeing continued inflow in the first part of the month.

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An uneven economic recovery, jitters over China’s real estate group Evergrande, and debt ceiling uncertainty didn’t help, pushing the stock market sank into a correction.

The 10-year U.S. Treasury yield rose more than 20 basis points during the month, ending September at 1.52%. Fixed income markets suffered on the whole. The sentiment was clearly risk off.

“We had our worst month since March of 2020,” said Chris Huemmer, senior investment strategist at FlexShares ETFs. “We broke the winning streak that we had for seven months of the equity market returns in the U.S.”

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U.S. Equity Funds Erase Q3 Gains

The Nasdaq composite was the worst performer on the month, sinking 5.27%, while the S&P 500 shed 4.51% and the Dow declined 4.29%, according to Lipper Inc. data.

U.S. diversified equity funds lost an average of 3.77% in September, erasing their Q3 gains and leaving them with -0.9354% on the quarter. Only a few sectors were spared from the carnage. The best mutual funds and ETFs struggled to retain their earlier gains. Among the worst performers were equity leverage and specialty diversified equity mutual funds, while those that saw the smallest declines were small-cap value and mid-cap value funds, down only 1.49% and 2.99% on the month, respectively. Year to date, the best mutual funds remain small-cap value and midcap value funds, each up 25.51% and 20.29%.

The global picture wasn’t much better, with most international and emerging funds posting sharp declines. Japanese and India region funds were the only ones to show positive returns. India funds are the best mutual funds for the year, topping 25%.

Despite the widely negative performance, September still saw positive flows, mostly realized in the first half of the month. About $32 billion went into equity ETFs, while $14 billion flowed to fixed income, according to Bloomberg Finance and State Street Global Advisors. It was the slowest month of the year for U.S. equity ETFs, however, even though they saw a record $300 billion in inflows this year.

September Slowness Hurt The Best Mutual Funds And ETFs

September being the slowest month of the year “is really signaling that there was a risk-off sentiment throughout the month, but certainly in the second half,” said Matt Camuso, ETF strategist at BNY Mellon Investment Management. “Although it’s a slow month, if we look more broadly, ETFs are still having a record year in 2021, at roughly $630 billion year to date.”

Among the best U.S. diversified stock ETFs for the year were Invesco S&P SmallCap Value with Momentum (XSVM) and Invesco S&P SmallCap 600 Revenue (RWJ),…