By William Power

Fund investors are paying their own kind of tariff so far this year.

After hammering out a 17.4% average gain for all of 2024, the average U.S.-stock mutual fund or exchange-traded fund fell 5.1% in the first quarter, according to LSEG. Concerns about tariffs and the economy weighed on markets, and continued to prompt many investors to increase their overseas-stock exposure. (See funds-data tables including Mutual-Fund Yardsticks.)

As U.S. markets faltered, international-stock funds stepped up. The category rose a net 6.4% in the quarter, coming to life after a lackluster 2024 when such funds rose just 4.8%, much weaker than their American counterparts.

"Stocks started the year priced for perfection, which paved the way for the February and March correction, which was exacerbated by worries about tariffs and a recession," said Gaurav Mallik, chief investment officer at Pallas Capital Advisors, in Braintree, Mass.

But "corrections are par for the course in investing," added Mallik, "and while we believe volatility is here to stay, we expect markets to move past trade worries and continue to make new highs by year-end."

Chris Zaccarelli, chief investment officer for Northlight Asset Management in Charlotte, N.C., said investors will continue to struggle with tariff news. "The silver lining for investors could be that this is only a starting point for negotiations with other countries and ultimately tariff rates will come down across the board -- but for now traders are shooting first and asking questions later," he said.

Such an atmosphere can be good for gold, a traditional haven during uncertainty. Gold-focused funds are on a roll so far this year, with a 30.9% gain in the first quarter, according to the LSEG data. The category rose 13.4% in 2024.

Fund flows

With uncertainty over the economy, bond funds continued to draw investors. They have sent a net $114.2 billion to bond funds so far this year, based on Investment Company Institute estimates. The performance of funds focused on investment-grade debt (the most common type of fixed-income fund) were up 2.7% in the quarter, after having risen 1.8% for all of 2024.

In contrast to investors' comfort with bond funds, they have been relatively tighter with their money when it comes to stock funds.

U.S.-stock funds drew a net $14.5 billion, according to the ICI estimates. And flows to international-stock funds were negative: Investors withdrew a net $17.4 billion from international funds even as they finally started to prove their worth.

Winners' Circle

Despite the overall setbacks in the first quarter, some well-managed mutual funds continued to hold on to gains for the past 52 weeks.

In our Winners' Circle review of the top-performing actively managed U.S.-stock funds, the No. 1 finisher for the past 52 weeks was Morgan Stanley Insight Fund (CPODX). It managed a 23.2% gain, based on Morningstar Direct data.

However, the market's recent declines have taken their toll on nearly all funds. When 2024 wrapped up, there were several funds with 40%-plus gains for the 52 weeks, many of them powered by the Magnificent Seven tech stocks such as Nvidia, Tesla and Amazon.com. As a group, these stocks, and the funds that hold them, are no longer strutting.

In fact, the top finisher in the Winners' Circle for 2024, Alger Focus Equity Fund (ALGRX) -- which topped that end-of-year survey with a return of 51.8% -- has seen its 52-week gain reduced to 15.4% in the latest survey, pushing it down to 10th place among the 1,206 mutual funds tracked. But it's still doing well relatively. The average return for all the funds is just 1.3% for the 52 weeks.

FINANCIAL FLASHBACK

A look back at Wall Street Journal headlines from this month in history

-- 25 YEARS AGO: AT&T Wireless's IPO

Just as the dot-com bubble began to burst in the second quarter of 2000, megasize phone company AT&T decided to shed its cellphone service known as AT&T Wireless Group. The ensuing sale became the then largest initial public offering on record, raising $10.6 billion.

Despite the epic amount of cash raised, AT&T Wireless's first-day jump was just 7.4%. Wall Street expectations were for an "unspectacular price performance," according to The Wall Street Journal. But many individuals had become conditioned to expect a huge first-day rally in the share price, says Art Hogan, chief market strategist at B Riley Wealth Management. Hogan says part of the problem was that so many shares had been sold.

That was likely disappointing for some who bet big on a first-day price surge. The Journal featured one AT&T employee's borrowing $54,400 on the IPO, an amount far greater than his annual salary. "That was very much the investing mindset which had yet to burst," Hogan says. But as became apparent shortly thereafter, that attitude evaporated as the tech-heavy Nasdaq index slumped until October 2022. "That was almost to the day things did turn for the market," he says.

As often happens on Wall Street, the glow was barely off the giant IPO, when things changed again; AT&T Wireless was sold to Cingular Wireless. Still, the IPO had helped the parent company AT&T. It had recently invested $100 billion in internet cable. "The IPO offered a lifeline," Hogan says.

-- 50 YEARS AGO: NASD Proposes Rules to Protect Investors Buying Stock in Firms First Going Public

-- 100 YEARS AGO: BRITISH A MOST THRIFTY PEOPLE: Small Investors Hold $3,766,200,00 -- Two-Thirds of Population Have Saved -- Compared with U.S.

--By Simon Constable

William Power is deputy section editor of Journal Reports in South Brunswick, N.J. Email him at william.power@wsj.com.

(END) Dow Jones Newswires

April 05, 2025 11:00 ET (15:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.