I had been getting a kick in the latter parts of 2009 reading many stories of how mutual funds were killling it in terms of performance. Almost none of these articles, full of lust, said much about how those funds performed in 2008. There are a couple star fund managers the media especially fawns over, who seem to be living off performance from a decade ago - but I suppose going to the same old well is the easier route for these stories. I won't name names.
This article from the Wall Street Journal is stunning in that it cites that only 3% of stock focused mutual funds of $100M+ in size (roughly 2300) are positive since Jan 1, 2008. That is despite many of them returning 40-50-60% in 2009 as the rising tide made everyone a genius again.
The math is very simple here... if you lose 40%, you need to return far more than 40% to make up losses. [try 66.7%] And I saw quite a few mutual funds that dropped far more than 40% in 2008.
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This does not even touch on the notion that many retail investors will also sell at the worst of times, locking in the big losses. It's not been a good decade for mutual funds, or the stock market. [Feb 5, 2009: Mutual Funds Have Tough Decade]
A closer look:
- As a new year begins, stock-fund managers are all smiles about 2009's outsize gains, their best results in 50 years. But factor in the horrendous 2008 and some 97% of all stock funds still show a loss.
- While the average 2009 stock-fund return of 34.9% was the best since 1958, average performance in 2008 was a loss of 40.5%, (if that is average, you can get an idea of what the damage was in the worse than average group) according to calculations from investment researcher Morningstar. So an investor with $1,000 invested on Jan. 1, 2008, would have only about $800 on Jan. 1, 2010.
- The figures may explain why investors remain shy about heading into stock funds despite the rally since last March. (my anecdotal experience is many older people are done with the market after enjoying the experience of 2 Fed induced bubbles in 1 decade - others simply have had their savings wiped away and cannot afford any more risk. Meanwhile younger people nearer to my age have experienced nothing but losses) [Apr 17, 2009: Decade of Losses, Forces Investors in their 30s to Start Over] Maybe fund companies are excited about 2009's returns, but investors are aware of how much money they've put into their accounts, said Karen Dolan, Morningstar's director of mutual-fund analysis. [Sep 16, 2009: Mutual Fund Investors Cling to Safety of Bonds, Missing Stock Rally]
- Few stock funds have delivered positive returns over the past two years. Of the 2,301 stock funds with more than $100 million in assets that were around for all of 2008 and 2009 (meaning newly hatched ones are excluded), just 63, or under 3%, are in the black over the two years, Morningstar says.
- Adjust the numbers for inflation, a low 2.5% for the two-year span, and that further whittles the in-the-black group to just 45 funds—less than 2% of all stock funds. Those 45 hold less then 1% of all stock-fund assets. Most of them have relatively small asset levels, which perhaps let them maneuver more nimbly amid the 2008-09 perils and opportunities.
- The top-performing stock fund with more than $100 million over the two years through Dec. 31, according to Morningstar, was Appleseed Fund (APPLX), which had two-year annualized return of 14.5%.