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Funds See Strong Third Quarter '09 Results, Lipper Says

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Equity funds had three consecutive months of positive returns, their strongest third quarter (+16.79 percent) in over 30 years, according to Tom Roseen, Lipper’s research manager for the United States and Latin America.

“Since the market bottom around March 9, 2009, equity funds rose an almost-unprecedented 65.20 percent, significantly chipping away at the devastating losses witnessed during the recent market carnage,” explains the Denver-based analyst.

For the one-year period ending September 30, though, equity funds remained in the red, down 3.10 percent. Some of the steam was let out of the market during late-September after mixed economic data was released, Roseen says.

On the heels of the big run-up in equities, investors took some money off the table with news about worse-than-expected existing home sales, durable goods orders and new home sales. Then, investors anxiously awaited the third-quarter reporting season, discounting the decline in jobless claims and improving consumer confidence levels.

The CBOE Volatility Index (VIX) fell a bit from the previous quarter-end (26.35) and ended the third quarter at 25.61. In July, investors cheered better-than-expected second quarter earnings, with the vast majority of the companies topping expectations, and the market remained buoyed by encouraging reports on both new and existing home sales for June and a rise in durable goods orders.

During the dog days of summer, investors cautiously bid up equity issues as economic data showed continued signs of improvement: durable goods orders, new home sales, housing prices, and consumer confidence beat consensus estimates in August.

For the quarter the Dow and the Nasdaq posted handsome returns, rising 14.98 percent and 15.66 percent, respectively, and tacking on 2.27 percent and 5.64 percent for the month of September.

Likewise, some 98 percent of all equity and mixed-equity funds posted plus-side returns and all but one of Lipper’s 78 equity classifications posted positive returns. For the month of September, 98 percent of all equity and mixed-equity funds posted returns in the black, with the average equity fund gaining 4.94 percent.

For the quarter, the dollar lost ground against the euro (-3.48%) and the yen (-6.64%) but gained against the pound (+3.00 percent). Commodity prices gained some ground: near-crude oil prices rose a mere 1.02 percent to close the quarter at $70.61 per barrel, and gold added on 8.73 percent to end the quarter at $1,008.00 an ounce.

The equity funds tally for the third quarter looked similar to last quarter’s, with two exceptions: real-estate funds — up 32.53 percent — posted their strongest quarterly return in over 30 years, and diversified-leveraged funds added 32.44 percent to last quarter’s value, taking the number two spot.

For the month of September, Latin American funds (+13.96 percent), gold-oriented funds (+12.25 percent) and emerging-markets funds (+9.12 percent) classifications jumped to the head of the class, and Japanese funds (-2.29 percent) and dedicated short-bias funds (-7.90 percent) declined.

World equity funds (+18.76 percent) took top honors within the four broad fund breakouts for the quarter, followed by sector equity funds (+18.32 percent), U.S. diversified equity funds (+15.76 percent) and mixed-equity funds (+12.68 percent).

For the second quarter in a row and for the fifth quarter in seven, value-oriented funds (+18.64 percent) topped the other style categories, with growth-oriented funds (+15.59 percent) lagging. For the second quarter in three, mid-cap funds (+18.79 percent) outpaced the other capitalization groups, with large-cap funds (+15.00 percent) lagging.

Small-cap value funds posted the strongest return of Lipper’s style-based funds, gaining 21.39 percent for the quarter, and mid-cap value funds (+21.04 percent) posted their strongest quarterly return in over 30 years. For September, small-cap growth funds (+6.86 percent) led the way, while large-cap value funds (+3.5 percent) lagged. Since March 9 Lipper’s U.S. diversified equity macro-group has climbed 61.03 percent, but its one-year return is still down 5.39 percent.

Investors looking for yield and bargains bid up securities in the sector-equity funds (+18.32 percent) macro-classification, which posted the second-best quarterly return of Lipper’s four macro-classification breakouts.

Real-estate funds (+32.53 percent, their best quarterly return in over 30 years), global real-estate funds (+25.17 percent), and global financial-services funds (+23.25 percent) stayed on top. With weakness in the dollar, a rise in oil prices, and general market skittishness toward September’s end, both gold-oriented funds (+12.25 percent) and natural-resource funds (+8.77 percent) jumped to the head of the class, while financial-services funds (+2.26 percent) and commodities funds (+2.34 percent) were at the bottom of the heap.

Since the market bottom, global financial-services funds and U.S. financial-services funds have rallied 117.16 percent and 113.90 percent, respectively.

World Equity

For the second consecutive quarter, the world equity funds (+18.76 percent) macro-classification had the strongest return of Lipper’s four macro-classification breakouts. Since March 9, the macro-group has rallied 74.76 percent, with Latin American funds gaining 114.83 percent during the period. Aided by a weakening dollar and an improving economic picture, these funds also had the strongest return (+28.11 percent) in the macro group for the third quarter, while Japanese funds (+6.79 percent) lagged.

Ten Largest Funds

American Funds Growth rose 13.38 percent in the third quarter and 27.05 percent in the first nine months of the year, while the American Funds Capital World Growth and Income ticked up 18.76 percent in the third quarter and 27.08 percent in the first nine months of 2009.

The Vanguard Total Stock Index moved up 16.46 and 21.58 respectively, and the Fidelity Contrafund 13.91 and 20.37.


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