U.S. Stock Funds — Worst Quarter Since 2002
Kurt Brouwer March 28th, 2008
The last quarter of 2007 was a tough time in the stock market and the misery has continued this year. Though the quarter is not quite over, it has been the very difficult for stocks across the board. Hardest hit have been technology and financials. Consumer stocks have also struggled [emphasis added below]:
US Stock Funds Fall Most In First Quarter Since 2002 (Bloomberg, March 27, 2008, Sree Vidya Bhaktavasalam)
U.S. stock mutual funds plunged 8.8 percent in the first quarter, the most in more than five years, as technology and financial stocks succumbed to the slowing economy and a lending pullback.
The average equity fund fared worse than the Standard & Poor’s 500 Index, the benchmark for the biggest U.S. stocks, which dropped 7.4 percent with dividends through March 25. Prominent losers included Bill Miller, manager of Legg Mason Value Trust, and William Danoff, who runs Fidelity Contrafund.
Most mutual fund managers like getting noticed, but being called a prominent loser is never welcome. Bill Miller and William Danoff are excellent portfolio managers, but their investment strategies are deeply out of favor right now and the results show it.
The decline was the biggest for equity funds since the third quarter of 2002, when they dropped 17 percent, according to data compiled by Morningstar Inc., the Chicago-based research firm. Since the peak of the last bull market on March 24, 2000, the average equity fund has returned 2.7 percent including reinvested dividends.
“Over the long range, U.S. stock returns have been fairly dismal, but it reinforces the point that we should not put all our eggs in one basket,” Tom Roseen, senior research analyst at Denver-based Lipper, a fund-data company, said in an interview yesterday. “We should have money in international funds and bond funds to help us in those down years.”…
In general, Mr. Roseen from Morningstar would be correct. Diversification usually helps when U.S. stocks fall. But this quarter, many bond funds and international funds are struggling too.
Just as an example of how things went, here are the results for five large stock mutual funds including Fidelity Contrafund and Legg Mason. These are not final results for the quarter though:
Fidelity Magellan ……………… -10.6%
Fidelity Contrafund ………….. -10.2%
Legg Mason Value ……………. -16.0%
Dodge & Cox Stock …………… - 9.8%
Vanguard Windsor II ………. - 9.2%
Data: Bloomberg
These are all funds with very good long-term records and no doubt they will turn things around.
This is a good time for portfolio managers to review their holdings with a critical eye and I am sure they are doing that. I would also hope that fund managers are shaking off the effects of these tough times and focusing their attention on the opportunities that this downturn has created.
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[…] fund managers like getting noticed, but being called a prominent loser is never welcome,” he writes. “Bill Miller and William Danoff are excellent portfolio managers, but their investment […]
[…] fund managers like getting noticed, but being called a prominent loser is never welcome,” he writes. “Bill Miller and William Danoff are excellent portfolio managers, but their investment […]