Funds reward wise investors

NEW YORK – Go big and stay home. Anyone who followed that strategy with their mutual funds in 2014 is likely sitting on another year of healthy returns.

Biggest was best

Large-cap stock funds jumped as a growing economy helped drive earnings to record highs. The average fund invested in large-cap growth and value stocks returned 12 percent. It’s the fifth year in the last six that such funds have delivered an annual return of better than 10 percent. Funds that focus on smaller U.S. companies also logged gains.

U.S. was best

Whether large- or small-cap, most foreign-stock mutual funds fell. Economies around the world, from developed markets in Japan and Europe to emerging markets in China, are struggling with either slower growth or recession. A big outlier among foreign markets this year has been Indian stock funds.

Bonds rebound

Most people thought bonds would struggle again after turning in their worst year in almost two decades, the result of rising interest rates. When rates rise, it knocks down the value of existing bonds by making their yields suddenly look less attractive. Expectations generally called for the U.S. economy to continue to grow, and most fund managers thought interest rates would keep climbing. They were wrong. The economy did grow, but rates dropped. The most popular bond fund category, intermediate-term bond funds, has returned an average of 4.8 percent. It’s a sharp turnaround from a loss of 1.4 percent a year earlier.

Index funds gain

It was another tough year for stock pickers. Through early December, 85 percent of mutual funds that invest in a mix of large-cap growth and value stocks were trailing the S&P 500. That’s their worst performance since 1997, according to Goldman Sachs.