Funds Struggle in Second Quarter

With U.S. markets off roughly 6-13 percent in the second quarter of 2010, very few funds were able to carve out positive results, according to Lipper data. The Amex dropped -5.84 percent, while the NYSE declined -13.13 percent.

Still, Lipper research managers say the weak equity fund performance of the second quarter could be behind us and that fixed-income funds may continue to produce positive results this quarter.

Speaking via webcast on July 8, Tom Roseen explained how the second quarter turned out to be so painful for equity funds, when only two out of 79 fund categories were in the black.

The funds rose 1.69 percent in April, but then dropped 7.93 percent in May — when the Dow had its worst quarter since 1962. In June, they declined 4.29 percent, and investors moved their money into gold funds, real estate and bonds.

“The second quarter of 2010 was the steepest drop since the fourth quarter of 2008,” said Roseen, “as equity funds declined 10.42 percent.”

World-equity funds fared even worse, falling 11.69 percent, while mixed-equity products moved down 6.35 percent in the period. During the quarter, the U.S. dollar appreciated nearly 10 percent against the euro. Gold prices ticked up 11.87 percent, and oil fell 9.71 percent.

U.S. diversified-equity funds are down 5.28 percent year to date. “It’s a monumental period to be taking a look at,” explained Roseen.

Growth funds are outperforming value, and small-cap funds are outpacing their larger-cap counterparts. “Technology investing is being made to increase productivity,” the analyst noted.

For the quarter, growth funds dropped 10.8 percent vs. 11.2 percent for value. The small-cap fund group declined 9.39 percent, while large-caps fell 12.26 percent.

In contrast, sector funds specializing in the real-estate industry moved down just 3.5 percent in Q2, when utilities funds fell by 5.16 percent. The quarter’s only positive groups were dedicated short-bias funds, which rose 9.92 percent, and precious-metal funds, which improved 9.73 percent, Lipper says.

Globally, countries in the Pacific — excluding Japan — such as Indonesia, Malaysia and Singapore “had an interesting story to tell,” noted Roseen, as they outperformed most other regions.

Among the top individual funds with positive performance, the Z-Seven Fund stands out: It topped the global small- and mid-cap category with returns of 50.39 percent in the first quarter and 26.56 percent in the first half of 2010.

This performance was similar to that of iPath ETN S&P 500 VIX — up 49.10 percent in the second quarter.

The Comstock Cap Value ticked up 13.88 percent in the period, and the SteelPath MLP Alpha I increased 2.24 percent.