The stock market ended the second quarter of 2012 on a weak note. The Dow lost more than 2% for the second quarter, after achieving a solid 8% return for the three months ended March 30, 2012. The market also showed broader weakness for the second three months of 2012, with the Russell 3000 Index reporting a loss of 3.1%, a point greater than the Dow Index. Investors are still dealing with the European debt crisis, with continued debt resolution concerns for Greece, Spain, and Italy. In this country, we still have stubbornly high unemployment, low GDP growth, and a weak housing market.

European stocks declined sharply during the same three-month period, reflecting concern about a default in Greece and Spain, and worries about the health of other Euro-zone nations. The MSCI EAFE Index reported a loss of 8.4% in the second quarter. This compares unfavorably with the second-quarter loss posted by the S&P 500, which declined 2.8%.

If the stock market remains a leading economic indicator, it is telling us that the U.S. economy may continue to remain stagnant before showing some signs of future growth. Note, the market’s recent ups and downs give further credence to the strategy of dollar-cost averaging, since it is virtually impossible to pick the “perfect” point in time to commit new funds.

In the second quarter of 2012, most equity funds listed in the accompanying table reported a loss for the three months ended June 30, 2012, although some met or exceeded the performance of their respective benchmarks (S&P 500, Russell 3000, MSCI EAFE, and MSCI WORLD). 

One relatively good three month performer was Franklin Income A (FKINX). For the three-months ended June 30, 2012, it reported a total return of 0.7%, outpacing all other funds on the table during the same time frame. This fund holds both stocks and bonds, with the objective of maximizing income while providing the opportunity for capital appreciation. As of March 30, 2012, the fund held about 37% of its assets in equities, 49% in U.S. bonds, and the 14% balance in cash, equivalents, and other. It currently has an above-average Overall Rank and an above-average Risk Rank, making it a possible choice for a variety of investors seeking growth with average risk.

Another fund with a noteworthy performance is American Funds Capital Income Builder A (CAIBX). For the three months ended June 30, 2012, it reported a total return of 0.6%, outpacing all but one of the 15 funds on our list. This fund seeks a good level of current income and a growing income stream, with long-term capital growth as a secondary objective. As of June 29, 2012, it held about 69% of its assets in equities, 22% in bonds, and the balance in cash and equivalents. It now has an average Overall Rank and a better-than-average Risk Rank, also making it a possible choice for investors seeking current income and capital growth.

A third fund that outperformed many of its peers over the past three months ended June 30, 2012 is American Funds Income Fund of America A (AMECX). This fund invests mostly in a diversified portfolio of common stocks and bonds. As of March 31, 2012, the fund had about 63% of its assets in equities, 22% in bonds, and 15% in cash, equivalents, and other. It objective is current income and capital appreciation. The fund tends to invest in “value” stocks. It currently has an above-average Overall Rank and is also rated less risky than most funds we follow, making this a superior choice for investors.