From the February 2010 issue of Research Magazine • Subscribe!

Strong Fund Returns in '09, Best Since '03, Lipper Says

Overall, though, equity funds were still down 24.24 percent from the 2007 market highs, notes Tom Roseen, Lipper's research manager

The returns of mutual funds in 2009 are in, and according to Lipper, performance was stellar.

World equity funds (up 42.38 percent) posted their strongest one-year return for the sixth year in seven and outpaced sector equity funds (up 35.35 percent), U.S. diversified equity funds (up 30.25 percent) and mixed equity funds (up 25.23 percent).

Though the beginning of the year was rough, equity funds had three consecutive quarters of plus-side returns. In the fourth quarter, 74 of the 78 classifications in Lipper's equity funds universe posted positive returns; dedicated short-bias funds (down 10.01 percent) were the biggest loser for the third straight quarter.

Three groups of world equity funds had one-year returns that topped 70 percent: Latin American Funds rose 113.09 percent, emerging markets funds improved 75.74 percent, and Pacific ex-Japan Funds grew 71.34 percent.

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Overall, though, equity funds were still down 24.24 percent from the 2007 market highs, notes Tom Roseen, Lipper's research manager for the United States and Latin America, leaving room for improvement. Still, equity funds posted their strongest one-year return (up 33.73 percent) since 2003, when equity funds posted their best return (up 35.66 percent) since 1967, Roseen explains.

As for 2010, he says, the Federal Reserve Board is likely to keep interest rates low, at least in the near term. "This easy-money approach has the potential of keeping the rally going, possibly to investors' consternation later on," adds Roseen.

In terms of the fourth quarter of 2009, October's negative equity fund returns (down 2.91percent) were followed by positive performance in November (up 4.49 percent) and December (up 3.47 percent). "Some 98 percent and 95 percent, respectively, of all equity and mixed-asset funds posted plus-side returns, contributing to the third consecutive winning quarter for equity funds (positive 4.92 percent for Q4)," says Roseen.

For the three-month period ended December 3, the analyst shares, the dollar lost ground against the pound (down 0.72 percent) but rose versus the euro (up 1.65 percent) and the yen (up 3.27 percent).

Commodity prices improved also, with near-crude oil prices expanding 12.39 percent to close the quarter at $79.36 a barrel and gold adding on 8.65 percent to end the quarter at $1,095.20 an ounce.

As for the first decade, the "aughts" of the second millennium (also referred to by some as the U.S.'s quasi-lost decade for equity investments), the average annualized 10-year returns range from 1.13 percent for U.S. diversified equity funds to 4.91 percent for sector equity funds. "It is fair to say, though, that the 10-year period ended December 31, 2009, was the worst in at least 50 years," concedes Roseen.
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