NEW YORK – There was one safe bet that mutual fund investors could make in 2008 – that the stock market was a place to lose a lot of money.
Funds’ performance stats for the year to date show that Wall Street’s decline was so punishing that investors had almost nowhere to hide. A majority of fund categories had negative returns in the neighborhood of 40 percent, and some categories dedicated to financial services and natural resources had negative returns of 50 percent or more, according to Lipper Inc., which tracks fund performance.
Lipper, whose tallies reflect trading through Wednesday’s session, found that what are known as bear market funds, which wager that stocks will fall, were among the few successes this year.
The results confirm what many investors already know from their 401(k) account statements and from tracking the market’s major indexes. The Standard & Poor’s 500 index, which is the benchmark for many funds, was down 40.88 percent through Wednesday, while the Dow Jones industrials were down 36.16 percent.
“This is the kind of market where investors throw out relative performance,” said Lipper analyst Jeff Tjornehoj. “Was there really much of a difference between a fund that was down 40 percent and one that was down 43 percent? Not really.”
Wall Street’s heaviest selling came in September and October after the bankruptcy of Lehman Brothers Holdings Inc. The brokerage’s collapse under the weight of soured investments triggered a freeze-up of lending and deepened Wall Street’s fears about the depths of the recession.
The numbers would have been worse if the market hadn’t rallied in the past month from the multiyear lows set Nov. 20; the S&P 500 has rebounded 16 percent since then. Investors pulled less money out of equity and bond funds in November than in October.
Although Lipper’s figures don’t include the last four trading days of the year, the funds’ performance isn’t likely to change substantially.
Tjornehoj said the market’s latest move off its lows appears to be helping some investors to stay in the market.
“They don’t feel they need to bail out. They feel they’ll miss that bounce off (the) bottom,” he said. Moreover, “if your fund is down 30 or 40 percent, bailing out now is unlikely to improve your status.”
The chaos in the financial markets wiped out gains that some market sectors were building on partway into 2008. While the commodities markets shot higher in the first half, giving a lift to funds that focused on natural resources and raw materials, the abrupt turnaround in commodities — including crude oil’s drop from $147 a barrel to $35 — plunged those funds into the same depths as more diversified funds.
Commodities funds’ negative return totaled 44.48 percent for the year and 32.90 percent for the fourth quarter, while natural resources funds had a negative return of 51.99 percent for the year and 39.44 for the quarter.
Financial services funds, which suffered as banks and insurance companies were pummeled by the credit crisis and the collapse of Lehman and Bear Stearns Cos., had a negative return of 46.90 percent for the year and 32.10 percent for the quarter. Financial stocks might have taken a bigger hit, but they were already falling sharply at the end of 2007 as the credit crisis was gaining momentum.
Global financial services funds returned negative 50.15 percent for the year after a negative return of 31.19 percent for the fourth quarter.
Defensive areas like utilities did well by comparison. Utility funds produced negative returns of 36.37 percent for the year after a negative return of 17.21 percent in the final quarter.
Health care funds also kept ahead of the broader market. Companies in the sector are seen as less likely to see business fall off in a tough economy. Health and biotechnology funds showed a negative return of 25.15 percent for the year and 17.66 percent for the quarter.
Funds designed to do well in a bear market lived up to that goal. So-called short-bias funds returned 36.16 percent for the year and 11.77 percent for the October-to-December quarter. The funds profit by correctly betting that a stock will fall.
Looking at funds that focus on market capitalization, small-cap funds suffered more than those focused on larger companies. Investors often flock to larger, dividend-paying companies during economic upheaval. Bigger names are seen as more likely to survive in a tough economy.
Small-cap growth funds posted a negative return of 45.35 percent for the year after returning negative 30.71 percent for the quarter. Small-cap value funds turned in a negative 37.53 percent for the year and 30.48 percent for the year.
By comparison, large-cap growth funds had a negative return of 42.78 percent for the year and 25.92 percent for the quarter. Large-cap value funds, which prize dividend-paying stocks, saw a negative return of 40.09 percent for the year and 25.13 percent for the quarter.
Investors are likely to remain reluctant to commit to mutual funds going into the new year.
“An event like this can shake your faith in markets. Rebuilding the trust is going to take some time,” Tjornehoj said.
Still, the recent strength in the market is allowing some hopes that Wall Street has endured the worst. And the first quarter won’t have to bring much relief to go down as a great improvement from 2008.
“Will we decline 40 percent for the quarter? I doubt that,” Tjornehoj said. “Hope springs eternal and next year we’ll have a different market.”
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Mutual Funds Show Heavy Losses for 2008
TIM PARADIS, AP
26 December 2008
NEW YORK – There was one safe bet that mutual fund investors could make in 2008 – that the stock market was a place to lose a lot of money.
Funds’ performance stats for the year to date show that Wall Street’s decline was so punishing that investors had almost nowhere to hide. A majority of fund categories had negative returns in the neighborhood of 40 percent, and some categories dedicated to financial services and natural resources had negative returns of 50 percent or more, according to Lipper Inc., which tracks fund performance.
Lipper, whose tallies reflect trading through Wednesday’s session, found that what are known as bear market funds, which wager that stocks will fall, were among the few successes this year.
The results confirm what many investors already know from their 401(k) account statements and from tracking the market’s major indexes. The Standard & Poor’s 500 index, which is the benchmark for many funds, was down 40.88 percent through Wednesday, while the Dow Jones industrials were down 36.16 percent.
“This is the kind of market where investors throw out relative performance,” said Lipper analyst Jeff Tjornehoj. “Was there really much of a difference between a fund that was down 40 percent and one that was down 43 percent? Not really.”
Wall Street’s heaviest selling came in September and October after the bankruptcy of Lehman Brothers Holdings Inc. The brokerage’s collapse under the weight of soured investments triggered a freeze-up of lending and deepened Wall Street’s fears about the depths of the recession.
The numbers would have been worse if the market hadn’t rallied in the past month from the multiyear lows set Nov. 20; the S&P 500 has rebounded 16 percent since then. Investors pulled less money out of equity and bond funds in November than in October.
Although Lipper’s figures don’t include the last four trading days of the year, the funds’ performance isn’t likely to change substantially.
Tjornehoj said the market’s latest move off its lows appears to be helping some investors to stay in the market.
“They don’t feel they need to bail out. They feel they’ll miss that bounce off (the) bottom,” he said. Moreover, “if your fund is down 30 or 40 percent, bailing out now is unlikely to improve your status.”
The chaos in the financial markets wiped out gains that some market sectors were building on partway into 2008. While the commodities markets shot higher in the first half, giving a lift to funds that focused on natural resources and raw materials, the abrupt turnaround in commodities — including crude oil’s drop from $147 a barrel to $35 — plunged those funds into the same depths as more diversified funds.
Commodities funds’ negative return totaled 44.48 percent for the year and 32.90 percent for the fourth quarter, while natural resources funds had a negative return of 51.99 percent for the year and 39.44 for the quarter.
Financial services funds, which suffered as banks and insurance companies were pummeled by the credit crisis and the collapse of Lehman and Bear Stearns Cos., had a negative return of 46.90 percent for the year and 32.10 percent for the quarter. Financial stocks might have taken a bigger hit, but they were already falling sharply at the end of 2007 as the credit crisis was gaining momentum.
Global financial services funds returned negative 50.15 percent for the year after a negative return of 31.19 percent for the fourth quarter.
Defensive areas like utilities did well by comparison. Utility funds produced negative returns of 36.37 percent for the year after a negative return of 17.21 percent in the final quarter.
Health care funds also kept ahead of the broader market. Companies in the sector are seen as less likely to see business fall off in a tough economy. Health and biotechnology funds showed a negative return of 25.15 percent for the year and 17.66 percent for the quarter.
Funds designed to do well in a bear market lived up to that goal. So-called short-bias funds returned 36.16 percent for the year and 11.77 percent for the October-to-December quarter. The funds profit by correctly betting that a stock will fall.
Looking at funds that focus on market capitalization, small-cap funds suffered more than those focused on larger companies. Investors often flock to larger, dividend-paying companies during economic upheaval. Bigger names are seen as more likely to survive in a tough economy.
Small-cap growth funds posted a negative return of 45.35 percent for the year after returning negative 30.71 percent for the quarter. Small-cap value funds turned in a negative 37.53 percent for the year and 30.48 percent for the year.
By comparison, large-cap growth funds had a negative return of 42.78 percent for the year and 25.92 percent for the quarter. Large-cap value funds, which prize dividend-paying stocks, saw a negative return of 40.09 percent for the year and 25.13 percent for the quarter.
Investors are likely to remain reluctant to commit to mutual funds going into the new year.
“An event like this can shake your faith in markets. Rebuilding the trust is going to take some time,” Tjornehoj said.
Still, the recent strength in the market is allowing some hopes that Wall Street has endured the worst. And the first quarter won’t have to bring much relief to go down as a great improvement from 2008.
“Will we decline 40 percent for the quarter? I doubt that,” Tjornehoj said. “Hope springs eternal and next year we’ll have a different market.”
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