Most Mutual Funds Are Down for the Year

USA Today reports that most stock mutual funds are down for the year:

The average diversified U.S. stock mutual fund has fallen 5.9% this year, vs. a 1.4% loss for the Standard & Poor’s 500-stock index, says Lipper, which tracks the funds. Out of 8,036 funds, 7,399, or 92%, are showing a loss — and some are doozies.

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One reason the average fund has lagged so badly: expenses. The average fund charges about 1.3% a year to pay for salaries, offices and other costs, according to Morningstar. Stock indexes have no expenses.

Also, stock funds tend to invest in midsize and small companies, which have lagged behind the S&P 500. The Russell 2000 small-cap index, for example, has fallen 8.4% this year.

Another reason is technical: Lipper’s average U.S. stock fund figure includes many new funds that use futures and options to amplify gains and losses. Without those funds, the average loss for U.S. stock funds would have been 4.1%.

Thanks to the European crisis, international funds have been smacked even harder: The average large-company international fund has plunged 15.5%.

Some specialized funds have tanked even more. Direxion Daily Real Estate Bear 3X, which uses futures and options to amplify performance up and down, plunged 57.7%.

It’s not all bad news. Virtus Small-Cap Sustainable Growth leads the pack among diversified U.S. funds, jumping 16.5%. And Direxion Daily India Bear 3X, an amped-up single-country fund, soared 58.8%.

Continued market volatility has sent investors fleeing stock funds this year. Investors have yanked out $133 billion more than they have put in to stock funds this year, according to the Investment Company Institute, the funds’ trade group.

Last year through October, investors pulled $37.2 billion from stock funds, vs. $84.5 billion the same period this year.

Few investors put all their money in stock funds, however, so the year hasn’t been a total wash. The average bond fund that invests in U.S. Treasury securities has soared 14.7% this year, as investors flocked to government securities for safety.

Funds that invest in Treasury Inflation Protected Securities, or TIPS, have surged 11% even though the consumer price index, the government’s main gauge of inflation, has risen only 3.4% the 12 months ended November.

Posted by on December 19th, 2011 at 12:34 am


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