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Portfolio > Mutual Funds > Equity Funds

2015: Not a Great Year For Equity, Mixed Products

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Equity funds suffer their first one-year drop in four years, according to Lipper, declining nearly 3.5% on average in 2015. U.S. diversified-equity funds weakened 2.1%, while mixed-asset funds — such as target-date products — decreased nearly 2.4% for the year.

World-equity funds had a tough year and dropped 3.9%. But sector-equity funds did even worse last year, falling 7.8%.

“Despite a disappointing finish for the year, with most of the major indices posting negative returns for December, equity markets posted plus-side returns for Q4 2015,” explained Tom Roseen, head of research services for Lipper, in a recent report.” Markets remained quite volatile for the quarter as investors kept a wary eye on the Chinese and European economies, the U.S. Federal Reserve, and free-falling oil prices.”

Equities began the last month of the year “with a bang but ended [it] with a whimper,” Roseen adds. “At the beginning of the month both the Dow and the S&P 500 posted their largest one-day gains in three months on an upbeat jobs report … [of] a better-than-expected 211,000 jobs for November …”

Later in the month, the fund specialist points out, equity prices “were whipsawed,” as investors digested the news that the Fed would be raising interest rates for the first time in nearly a decade. By mid-December, the Dow Jones posted the most 100-point daily moves in the month of December since 2008, “making for one of the most volatile Decembers in years,” explains Roseen.

Lipper says its preliminary Q4 2015 fund-flows figures indicate that fund investors were net redeemers of fund assets for the quarter, withdrawing an estimated $42.6 billion from conventional funds (excluding ETFs). Close to $72 billion was redeemed from equity funds and over $44 billion from taxable bond funds. Meanwhile, investors purchased a net $65.9 billion of money market funds and $7.6 billion of municipal bond funds.

Meanwhile, investors “turned a cold shoulder to both domestic and non-domestic equity funds” in the fourth quarter, Roseen states, “withdrawing $63.4 billion and $8.5 billion, respectively.” Year-to-date flows for conventional funds, though, showed investors’ preference for non-domestic equity funds with flows of close to $94 billion over U.S.-equity funds, which had almost $153 billion in net outflows. (Investors put some $71 billion into equity ETFs, $8 billion into taxable fixed-income ETFs and $1.3 billion into municipal-debt ETFs in Q4’15, according to Lipper.)

In the final quarter of 2015, 81 of Lipper’s 96 equity and mixed-equity fund classifications posted positive returns, with U.S. diversified-equity funds improving nearly 4% vs. 3.3% for world-equity funds, 2.1% for mixed-asset funds and 1.4% for sector-equity funds. Funds focused on global science and technology companies rose roughly 10% in Q4’15, but funds in the commodities and energy group dropped about 16% in the period.

For the full year, U.S. diversified-equity funds (down 2.1%) generated the best performance of Lipper’s four broad equity macro-classifications. Within this group, large-cap growth funds improved close to 5.3%, followed by multi-cap growth funds at 2.5%. On the other hand, leveraged funds declined about 12%, while small-cap value funds weakened about 7%.

Alhough Japanese funds improved 12%, the 3.9% world-equity decline was due to weakness in emerging markets, such as Latin America; funds focused on this region dropped close to 30%.

In fixed income, Lipper’s general U.S. Treasury funds group saw its returns decline close to 1.5% in Q4 2015, when yields rose in anticipation of a Fed rate hike. Funds in the corporate debt group were generally lower, while high-yield funds cratered 1.9% and loan-participation funds dipped 2.1%, according to Jeff Tjornehoj, head of research for Lipper in the Americas.

The largest fixed income group, the $686-billion core-bond funds group, ended Q4 with a loss of about 0.6%. Municipal bonds “decoupled from Treasuries,” Tjornehoj says, and the average single-state muni debt fund was up close to 1.4% for the quarter — and 2.6% for the year — on a pre-tax basis.


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