Funds Share Strong Quarter
It was a quarter when your mutual fund managers actually earned their paychecks.
Roughly 80 percent of diversified mutual funds outperformed the Standard & Poor’s 500 index in the third quarter, the biggest win for active funds since 1979. The average equity fund climbed about 11 percent between July 1 and Sept. 30, compared to a gain of about 8 percent for the index.
Mutual fund managers will have you believe their good numbers were the result of brilliant stock-picking, but the truth is probably less flattering. Simply put, small- and medium-cap stocks did better than big stocks in the quarter, and the typical mutual fund had a lot of the first two types of stocks in its portfolio.
Whatever way you explain it, investors had no reason to complain. Mutual funds had their best quarter in more than a year, and practically every type of fund participated in the good times.
Lipper Analytical Services, which tracks the performance of funds, makes the following observations about the third quarter:
The smaller the stocks, the better the performance. Mid-cap stock funds returned 14.5 percent in the quarter, small-cap funds returned 16.9 percent, and micro-cap funds returned 24.2 percent in the three-month period.
Technology and financial services funds, up 16.6 percent and 12.8 percent, respectively, did better than any other sector funds. In fact, for almost any period you look at over the past 10 years, these two sectors have outperformed the pack.
The United States was the place to be for investors. The average world equity fund actually lost money during the quarter, dragged down by big losses in Japan and Southeast Asia.
All that is gold does not glitter. Gold funds were up just 1.4 percent in the quarter, and are down 22.1 percent for the year.
The backdrop for investors could hardly have been better during the third quarter. “We’ve had a terrific economy,” said Robert Freedman, chief investment officer for John Hancock Mutual Funds.
The US economy continues to grow at a solid - but not alarming - pace, and the inflation news is spectacular. By some measures, inflation is at it lowest level in 30 years.