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Fund Times

Fund Times: Market Shock's Impact on Funds

Plus, news on Lord Abbett's lower fees, Franklin to close funds, and more.

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Many fund investors felt anxiety this week as broad market indexes declined dramatically Tuesday, Feb. 27, following a sharp decline in Chinese markets, mixed-economic news, and growing concern over declines in the U.S. subprime mortgage market. While a single day of market activity doesn't tell us anything about the condition of the market overall, observing how various categories and specific funds behave under these circumstances can be instructive.

All nine of Morningstar's Style Box categories lost near 3% on Feb. 27, but, as would be expected, some Morningstar fund categories held up better than others. The hardest-hit categories overall, not surprisingly, were historically volatile Latin American Stock, Precious Metals, and Diversified Emerging Markets, with declines of 7.69%, 6.14%, and 5%, respectively. For example,  T. Rowe Price Latin America (PRLAX), a fund we like a good deal, nevertheless declined 6.88% that day, and  American Century Global Gold (BGEIX) dropped 6.14%. Also, not unexpectedly, every single fixed-income category, with the exception of emerging-markets bond and high-yield bond (two of the more volatile and risk-holding groups, which saw very modest declines), were in positive territory on the day. In fact, since investors will often flee to the safety of U.S. Treasuries during uncertain times and equity market shocks, the Long-Government category actually increased nearly 1.3% Tuesday. Two funds that benefited were  T. Rowe Price U.S. Treasury Long-Term (PRULX) and  Vanguard Long-Term U.S. Treasury (VUSTX), which gained 1.23% and 1.18%, respectively.

Lawrence Jones does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.