Fund Results: Strong Third Quarter

The KBW Fund Performance Tracker found that equity funds for the 21 asset managers it followed were up about 9.1 percent in September and roughly 12.2 percent in the third quarter. Fixed-income returns rose about 1 percent on average in September and 4 percent in 3Q.

“This suggests Q3 investment returns are well ahead of the assumptions used in our current EPS forecast,” said the report authors Robert Lee and Larry Hedden, CFA, of Keefe, Bruyette and Woods in the firm’s Oct. 1 report.

Returns of iShares ETFs for the S&P 500, MSCI EAFE and MSCI Emerging Markets indices were 8.8 percent, 10.0 percent, and 11.8 percent, respectively, in September and 11.3 percent, 18.1 percent, and 20 percent, respectively, in 3Q.

In terms of fund families, third-quarter equity returns were best at AllianceBernstein and Artio, with asset-weighted returns of 16.3 percent and 15.3 percent, respectively, helped by a heavy weighting toward global/international products.

Fixed-income fund returns were positive on average at roughly 1 percent in September and 4 percent in the third quarter.

“If equity markets can hold onto or extend their recent gains, this could help moderate the pace of equity fund outflows over the next month or so,” wrote Lee and Hedden. “In that scenario it is even possible equity flows could turn modestly positive, at least until the typical end-of-year holiday slowdown kicks in around Thanksgiving.”

The Fund Tracker only measures investment performance of U.S.-domiciled mutual funds, not all funds in each manager’s asset base.

Some popular fund families and their fund performance for 2010 through September 30 are as follows:

• Eaton Vance High Income Opportunities, 10.5 percent
• Federated Strategic Income, 10.5 percent
• Invesco Gold & Precious Metals, 22.1 percent
• Invesco Real Estate, 15.9 percent
• iShares Barclays 7-10 Year Treasury Bonds, 14.3 percent
• iShares MSCI Emerging Markets Index Fund, 8.6 percent
• T. Rowe Emerging Markets & Mediterranean, 16.2 percent
• T. Rowe Latin America, 9.9 percent

Fixed Income

According to Lipper, the third quarter’s best performance was turned in by strategies that benefited from dollar weakness. “The U.S. dollar index (TXA) sank over 7 percent to send emerging-markets debt funds and international income funds up 9.23 percent and 9.22 percent, respectively,” explains Jeff Tjornehoj, research manager, U.S. & Canada, in a report.

High-yield funds made a strong showing, climbing 6.42 percent, while muni funds rebounded from a disappointing second quarter and returned an average of 3.30 percent. General U.S. Treasury funds returned 3.70 percent.

The Thomson Reuters’ monthly poll of American asset managers revealed a small uptick in favor of bonds during the third quarter, says Tjornehoj. Respondents’ average allocation in bonds rose to 31.1 percent in September from 29.5 percent in June, while stock allocations fell to 61.7 percent in September from 64.8 percent in June.

“What’s more interesting was the composition of the average fixed income allocation,” he explains. “The category of “government securities” declined from about 50 percent to roughly 37 percent, while investment-grade corporates climbed from 30 percent to 36 percent and ‘high yield’ increased from 7 percent to 12 percent. Institutional faith in equities may have been unsettled, but faith in govies was falling apart.”