A Third-Quarter Mutual Fund Scorecard

After remarkably smooth sailing for six-plus years, many investors had been bracing themselves for volatility. They got it in the third quarter of 2015, when a broad swath of investment types--especially stocks--took a tumble.

Worries over global growth, especially in emerging markets, was the key catalyst for the sell-off. Although stocks had started to look shaky earlier in the quarter, the Federal Reserve's early-September decision to stave off an interest-rate hike due to fragile overseas economies was all investors needed to send them scurrying for the safety of Treasuries. High-quality bonds, both taxable and municipal, were rare pockets of strength in an otherwise-punishing market environment.

Here's an overview of which investment types fared particularly well--and particularly poorly--during the quarter, as well as a look at the performance of various medalist funds during the period.

Domestic Equity Nearly all domestic-equity funds fell during the second quarter, most by double digits. But large-cap and more growth-oriented funds generally lost less than smaller-cap and value-leaning offerings. Large firms frequently have more diversified product lineups and may be less dependent on the economic cycle than the market's small fry, so they frequently fare better than small firms in the later stages of an economic recovery. And while health-care stocks tumbled--especially biotech names, which are growth-fund mainstays--the energy and basic-materials sectors also continued to struggle; such stocks tend to be the domain of value-leaning offerings.

Many of the medalist funds that fared best during this period focus on high-quality stocks and have been strong defensive players in the past. That list includes the Gold-rated

Several small- and mid-cap-oriented funds held up well, too, bucking overall weakness in that market segment. The Gold-rated

On the other side of the ledger, other medalists have had a terrible quarter and are scraping their categories' bottoms for the year to date, too. At the top of that ignominious list are the Silver-rated

International Equity Stocks from developed foreign markets performed roughly in line with the U.S. market during the third quarter. But with slow growth weighing on emerging-markets economies, the whole gamut of emerging-markets equities has been decimated, with funds in the Latin America stock and China region bringing up the rear for the third quarter. Diversified foreign-stock funds that emphasize emerging markets have fallen harder than their peers.

Bronze-rated

The foreign-stock laggards list is a who's who of standout actively managed funds. Some of these, such as the Gold-rated

Taxable Bond Bonds held their ground better than stocks during the third quarter. The long-term government-bond category was the best-performing group during the period, spurred by the Fed's decision to defer a rate increase until later in the year. (Only the bear-market category managed better average performance among all mutual funds.) Core intermediate-term bond funds remained flat or even gained slightly during the period, with those that erred on the side of conservatism performing especially well. On the flip side, lower-quality and more equity-sensitive bond types struggled. The emerging-markets bond category was, naturally, the worst-performing group, followed by high-yield bond.

Among medalist funds, those with a conservative bent--either by mandate or by managerial decision--held their ground. The Silver-rated

Not surprisingly, more aggressively positioned funds have struggled. The Gold-rated

Municipal Bond Like taxable bonds, municipal bonds also posted decent across-the-board gains. Longer-duration bonds modestly outperformed intermediate-term bonds. As a testament to the overall health of municipal finances, high-yield muni bonds didn't fall in sympathy with the corporate high-yield market; the high-yield muni-fund category managed a positive gain for the quarter.

Most investors view municipal bonds as the safe part of their portfolios, so Morningstar's medalists in the category tend to lean toward conservatism. Funds like