Sometimes, everyone's a winner. Last year was one of those times for mutual-fund investors.
Nearly every fund made money during 2017, which ended up being one of the most enjoyable years in history for investors as improvements in corporate profits and economies around the world lifted markets. Even some of the biggest laggards of recent years shared in the gains, including funds that focus on Latin American stocks, commodities and other niches.
Losses were so rare that an investor at the start of 2017 had tougher odds of randomly picking a fund that would go on to lose money than of getting a cloudy day in the Arizona desert. Ninety seven percent of all the funds tracked by Morningstar had positive returns last year. (The probability of getting sun in Phoenix is closer to 85 percent.)
The success rate was even better for the kinds of funds at the heart of most 401(k) accounts. Ninety nine percent of broad-based U.S. stock funds logged gains. Same for bond funds.
Perhaps more remarkable is how headache-free those returns were. Investors skated through the year with only a handful of big down days, and even those were relatively mild in historical terms.
Consider the largest mutual fund by assets, Vanguard's Total Stock Market Index fund. Investors had to deal with a 1 percent loss for the fund on only six days last year. The year before, there were 27 such days. Last year was also the first in history where the Standard & Poor's 500 index had a positive total return for all 12 months.
"People's pain is, really, volatility and how much they were down at one point: Let's call that the pain index," said Doug Ramsey, chief investment officer of the Leuthold Group. According to that measure, last year "was right there with '64 and '95 as the least painful stock-market years on record."
Of course, even though nearly everyone was a winner last year, some were bigger winners than others. Simple index funds were again the better performers than funds run by managers looking to beat the market for most, but not all, categories of U.S. stock funds.
Among the other trends that shaped the year for fund investors:
— Foreign stock funds led the way.
Investors came into the year thinking that a White House with an "America First" ethos could end up hurting global trade and be a drag on developing economies in particular.
But funds that focus on stocks outside the United States ended up being the year's biggest winners as economies from South America to Europe to Asia finally began to move higher in concert. Chinese stock funds returned an average of 42 percent, nearly double the performance of S&P 500 index funds that track U.S. stocks, for example.
Part of the performance was the result of the falling value of the U.S. dollar, which meant that each rise of 1 euro or 100 Japanese yen in share price was worth more in dollars at the end of the year than at the start.
—Tech stocks from all over the world powered up, as investors chased after anything growing quickly.
In the U.S., Amazon.com, Netflix and Facebook all jumped more than 50 percent. Tech giants elsewhere had even bigger gains, and China's Tencent more than doubled to end the year at the edge of the top 10 list for the world's most valuable companies.
That helped power technology stock funds to an average return of 35 percent in 2017, more than triple their performance of a year earlier. Tech companies also tend to be favorites of managers looking for growth, and growth stock funds trounced their value-fund counterparts. The average mid-cap growth fund returned 24 percent, for example, nearly double the average mid-cap value fund's return.
— Bond funds stayed strong.
Coming into the year, investors worried that a surge in interest rates could leave bond fund investors with losses. That's because the price of a bond moves in the opposite direction of yields.
But even though the Federal Reserve raised short-term interest rates three times during 2017, longer-term rates remained stubbornly low. That meant prices for bonds remained high, and nearly all bond funds logged positive returns.
The most popular type of bond fund is one that focuses on intermediate-term bonds, and such funds returned an average of 3.7 percent last year. That's the best performance in three years.
— Some stock pickers picked it up.
For years, stock-picking fund managers have fallen short of index funds, which have the advantage of charging lower fees. Last year saw some improvement in pockets of the market.
Just over half of the fund managers who specialize on small-cap growth stocks, which includes young technology and health care companies, beat their respective index fund, according to Jefferies. It's a big step up from 2016, when only 36 percent of such fund managers did so, and it's the best showing since 2011.
The improvement wasn't universal, though. In most categories of U.S. stock funds, index funds still did better than the majority of actively managed funds. Less than a third of large-cap core stock funds beat the S&P 500, according to Goldman Sachs.