NEW YORK Funds that focus on U.S. home loans recorded their biggest quarterly loss in nearly two decades as investors fled out of bonds in the past six weeks on fears that less stimulus from the Federal Reserve will push up interest rates.
The 62 open-end, close-end and exchange-traded funds which specialize in mortgage-backed securities and tracked by Lipper - a unit of Thomson on average posted a 1.87 percent loss in the second quarter, the steepest decline since the first quarter of 1994, Lipper said.
A global bond market sell-off started in late May after Fed Chairman Ben Bernanke said the central bank might make a decision whether to pare its $85 billion monthly purchases of U.S. government and mortgage bonds later this year.
The stampede out of bonds globally intensified some three weeks later when Bernanke laid out a blueprint on how the Fed might reduce its third round of quantitative easing, nicknamed QE3.
The market sell-off propelled U.S. benchmark yields and mortgage rates to near two-year highs last week.
Only four of the mortgage funds managed positive returns in the three-month period from April to June, Lipper said on Monday.
The quarter's top performing mortgage fund was Vertical Capital Income Fund (VCAPX.O) which earned a 4.91 percent return, raising its year-to-date return to 2.31 percent. It had total assets of $25.7 million at the end of May.
For the first six months, Western Asset Mortgage Defined Opportunity Fund (XDMOX.O) was the best performing mortgage fund with a 8.73 percent return. It had total assets of $375 million at the end of May.
At the other end of the spectrum, American Strategic Income Portfolio II BSP.N ranked last among mortgage funds tracked by Lipper with a loss of 8.18 percent in the second quarter.
The second-quarter loss was the biggest quarterly loss for the close-end fund that was launched in 1992 and had net assets worth $149 million at the end of June, according to Lipper.
This fund was also the worst performing mortgage fund in the first half of the year, losing 6.85 percent.
(Reporting by Richard Leong; Editing by Chizu Nomiyama)