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Portfolio > Mutual Funds > Equity Funds

Positive Returns: Four Quarters in a Row

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“Equity funds strung together their fourth consecutive quarter of plus-side returns during first quarter 2010, posting a 4.64 percent return despite losing ground in January,” said Tom Roseen, Lipper’s research manager for the United States and Latin America in Denver, in his March 31 analysis.

According to Lipper, U.S. diversified-equity funds (or USDE) posted the strongest quarterly return for the first quarter in 24 with a boost of 5.67 percent. This means the group outpaced sector-equity funds (3.90 percent), mixed-equity funds (3.49 percent) and world-equity funds (2.30 percent).

In the first quarter of 2010, 70 of Lipper’s 78 fund classifications had plus-side returns. Dedicated short-bias funds, of course, had losses of 8.86 percent, making this group the biggest loser for the fourth consecutive quarter.

In early 2010, U.S. diversified-equity funds and sector-equity funds topped the charts, while world-equity funds were at the bottom. Strong sector-fund performers included financial-services funds, up 11.54 percent, and Japan funds, up 7.53 percent.

Fund Flows

Fund investors were net redeemers in the first three months of the year — taking some $167.3 billion out of conventional funds. However, a sea change may have begun, Lipper says.

For the fourteenth month in a row, money-market funds had strong outflows, but equity and fixed-income attracted investor assets. In 2009, investors put $5.50 into bond funds for every $1.00 they invested in equity funds.

Not so this year. During the first quarter that ratio fell to $2.77 for every $1.00 invested in equity funds. “Not only did investors step up their contributions into equity funds, they also changed their favored type of equity funds,” Roseen explained.

Whereas in earlier years, sector-equity and world-equity funds were most popular, this year domestic-oriented and non-domestic equity funds did equally well in the first three months.

In January, equity-fund returns declined close to 4 percent, but in February they rose nearly 3 percent. March saw them jump above 6 percent. Thus, 91 percent and 98 percent respectively of all equity funds and mixed-asset funds posted plus-side returns, Lipper research shows.

Diversified-leverage funds rose 12.26 percent, with financial-services funds increasing 11.54 percent and consumer-services funds 11.29 percent. Real-estate funds had a decent quarter, moving up 9.63 percent.

Laggards for the quarter were gold-oriented funds (-0.86 percent), utility funds (-1.86 percent), commodities funds (-2.40 percent) and dedicated short-bias funds (-8.86 percent).

For the third quarter in four, value-oriented funds (up 7.12 percent) did better than other investing styles, Lipper reports. And for the first quarter in three, small-cap funds (up 8.05 percent) outperformed other capitalization groups, such as growth-oriented funds (up 5.60 percent) and large-cap funds (up 4.86 percent).

World Equity Funds

This group was hit by a strengthening dollar, monetary tightening in China and sovereign-debt issues. And for the first quarter in seven, the world-equity fund category rose only 2.30 percent.

Japan funds did well, up 7.53 percent, as European funds declined 0.40 percent and China funds fell 0.21 percent.

Overall, emerging-markets funds outperformed the Japanese group (up 8.23 percent), and Latin American funds came close (up 7.17 percent).

For the quarter, the mixed-equity funds macro group, which includes target-date funds, grew nearly 3.5 percent, outpacing world-equity funds. Target-date funds for 2035-2050 moved up 4 percent and higher, while 2010 funds increased roughly 3 percent on average.

During the 12-month period ending February 28, 2010, this group drew the majority of positive net flows in the equity-fund universe, some $69.3 billion out of $113.4 billion.

World-equity funds had some $47 billion of net inflows over the period.


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