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February 01, 2012 at 07:00 PM
The last few months of 2011 entailed sovereign-debt issues in Europe, partisan gridlock and other tough scenarios, but the average equity fund still improved 8.73 percent in fourth quarter, according to Lipper. Unfortunately, these funds ended the year down 6 percent.
“Despite a strong ‘Q3 earnings reporting season, with 70 percent of the S&P 500 constituents reporting earnings above analyst expectations, investors remained rattled by the on-again/off-again resolutions of European authorities and the relatively high U.S. unemployment rate,” said Tom Roseen, head of research services for Lipper in Denver, in his latest performance report, which was released in early January.
Though equity funds ended 2011 with negative results for the full year, the Dow Jones Industrial Average was able to post a 5.53 percent return, Roseen notes, after a good fourth quarter. “However, with lowered government spending in the cards, corporations sitting on a pile of cash, continued accommodations by the Fed, and advances in technology, investors had a reason to cheer toward year-end,” he explained.
According to Lipper’s preliminary fund-flows data, equity mutual-fund investors were net redeemers last year, pulling out an estimated $74.0 billion from the conventional funds business (excluding ETFs). It’s worth noting, though, that with the flight to safety of the last six months of 2011, investors injected $128.6 billion into taxable fixed-income funds for the year while redeeming a net $17.4 billion from the muni-bond fund group and $145.3 billion from money-market funds.
The equity-funds universe suffered downside performance in seven of the last eight months of 2011; only posting a plus-side return of 11.32 percent in October, Roseen shares. In November, the average equity fund slumped 1.32 percent and then handed back 0.88 percent for December.
In the fourth quarter, 79 of Lipper’s 86 equity and mixed-equity fund classifications posted positive returns. U.S. diversified-equity funds rose 10.77 percent, sector-equity funds ticked up 7.44 percent, and mixed-asset funds improved 5.65 percent.
The notable laggards for the quarter included precious-metals funds, which declined 5.71 percent, as gold lost 3.37 percent to end the quarter at $1,565.80 an ounce. Nonetheless, gold was still in positive territory for the one-year period, with a gain of 10.18 percent for 2011.
Fund Categories
For the first quarter in three, the U.S. diversified-equity funds macro-classification (which rose 10.77 percent in the final quarter of 2011) was the best performing of Lipper ’s four broad-equity macro-classifications. The group was helped by equity-leverage funds (16.92 percent) and small-cap value funds (15.65 percent).
According to Lipper, value-oriented funds (13.14 percent) outperformed the other styles for the first quarter in eight, and for the first quarter in four, small-cap funds (14.60 percent) outpaced the other capitalization groups. Mid-cap funds (11.69 percent) and large-cap funds (10.66 percent) outpaced their multi-cap counterparts (10.36 percent).
With investors’ preference for dividend-paying issues and defensive stocks in December, equity-income funds moved up 1.51 percent) for the month, nearly 12 percent for the quarter and 2.85 percent for 2011.
World-equity funds lagged the other three macro-groups for the month (-2.49 percent), the quarter (+4.47 percent), and the year (-14.06 percent), says Roseen: “Rising oil prices as a result of Middle East and African political revolts; devastation from Japan’s major earthquake, tsunami, and subsequent nuclear disaster; and China’s slowing growth led to investor consternation, and investors generally fled from riskier assets.”
In the fourth quarter, though, investors bid up global-focused and large-cap issues, so that global large-cap core funds gained 7.76 percent for the last three months of the year and global large-cap value funds rose 7.56 percent.
Mixed-Equity Funds
In the fourth quarter, the mixed-equity funds macro-group improved 5.65 percent; this group comprises primarily life-cycle or target-date and target-allocation funds. Over the past few years, this group was the largest attractor of investor assets in the equity universe, Lipper says.
Through Nov. 30, 2011, the macro-group gained $58.6 billion in assets, more than doubling the inflows of the world-equity funds group. Quarterly returns for mixed-equity funds ranged from 0.73 percent for absolute-return funds to 8.68 percent for mixed-asset target 2045. The macro-group, though, suffered a one-year decline of 1.34 percent.
