Friday, July 9, 2010

Marketwatch: Average Equity Mutual Fund Crumbles 10.7% in Q2

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Per Marketwatch it appears the second quarter was another typical performance for the crowd that for the most part appears to be nothing more than closed index funds.  [Feb 5, 2009: Mutual Funds Have Tough Decade]  But I suppose we should clap a little since the equity mutual fund class a whole was able to "beat" the S&P 500 by 0.7% (-10.7% v -11.4%).  I'll break out the bubbly.

Sadly, only 3 funds in the entire equity universe were able to stay in the black for Q2.  Gosh, sometimes I wish I were up and running right now ;)  Can you imagine the mention in the following story "some no name fund with almost no assets and a pathetic marketing budget was up 11% for the quarter.  Due to an inexperienced manager, high cash levels (you call that investing?), a dual focus on fundamentals & witchcraft (technical analysis), exotic strategies such as "shorting", and an inability to stay inside a Morningstar box we warn you to stay away.  Without teams of eager CFAs trained on textbooks doing grunt work, and lack of access to institutional research, surely this performance is an anomaly.  To top it off you'd be forced to pay short term taxes due to the frantic trading style and as we all know it is far better to lose 10% in 90 days, than to pay Uncle Sam a dime.  Please continue submitting your quarterly or monthly investments to the 'name' fund families that we know and trust."


  • The second quarter brought investors in U.S. stock funds face-to-face with some ruthless mean girls -- April, May and June -- and the meeting wasn't pretty.   June busted stock mutual-fund portfolios all over, May unleashed mayhem, and April, if it wasn't the cruelest month, came close to it. The benchmark Standard & Poor's 500-stock fell 11.4% in the quarter, including reinvested dividends.
  • Taken together, the three-month stretch slammed U.S. stock fund shareholders with their worst quarterly loss since December 2008. The average domestic stock fund tumbled 10.7% in the period through June 30.
  • Moreover, the dismal showing wiped out the gains fund investors enjoyed in the year's first three months. For the year through June, U.S. stock funds were down 5.4% on average.

Morningstar box time!
  • Large-cap stocks, with their global footprint and strong financial shape, were widely thought to have staying power in a downturn, but that proved not to be the case. Large-cap growth funds lost 12% in the quarter, while large-cap value counterparts shed 11.7%, as a stronger U.S. dollar, the eurozone debt crisis and concerns about the global economy weighed on stock prices.
  • More domestically rooted midcap and small-cap funds made a relatively better showing; midcap growth funds, for instance, fell 9.7%, and small-cap growth portfolios dropped 9.1%.

The few who actually protected capital for the quarter:
  • In fact, only a handful of retail-oriented U.S. stock funds finished the quarter in the black, according to Morningstar. These include midcap-growth focused Monteagle Informed Investor Growth Fund (MGGAX) up 2.7%, and two large-cap oriented offerings: Stadion Managed Portfolio Fund (ETFFX) which invests in exchange-traded funds and was up 0.5%, and Wasatch Heritage Value Fund (WAHVX) which eked out a 0.2% gain.

Speaking of names we "know and trust"
  • The biggest U.S. stock funds -- accounting for a good chunk of the money investors have committed to the market -- came unmoored.  Among actively managed giants, Dodge & Cox Stock Fund (DODGX) fell 13.7% and American Funds' Growth Fund of America (AGTHX) lost 11.7%.
Impressive work for 90 days.
  • "The frustrating back and forth market ... has been a trader's heaven and an investor's nightmare," wrote Paul Nolte, managing director at investment manager Dearborn Partners, in a research note to clients.
Adjust or die; it's HAL9000's world and we only live in it. 

Or I guess in the mutual fund world, don't adjust and keep receiving the flood of 401k monies since the same few mega fund families have cornered the market.

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