THIRD QUARTER COMMENTS
Trying to get your arms around which fund type to invest in these days is like trying to understand the lyrics of a rock group like Korn; right about the time you've figured out what they're singing about another group has a louder hit.
Look at the latest quarterly performance numbers of Lipper's U.S. Diversified Equity Funds category---which represents the performance averages of 15-different fund types--- and the picture is not particularly sweet. The group's average reflects a total return that was down 5.38 percent.
As always, big picture and longer-term points of view show a host of winning and losing fund averages: The biggest losses coming from the quarter just ending; the biggest winners, from total returns racked up over the past 1-year ending Sept. 30; and the best performing fund types within the category over the past 3 months, year-to-date and 1-year time frames being mid-cap growth funds and small-cap growth funds.
Look at the long-term investing total returns---those racked up over 10- and 15-year time frames--- and you'll notice that holding on for the ride hasn't necessarily paid off. According to the averages, anyway. For example, the average total return for funds included in the U.S. Diversified Equities Funds heading was 14. 6 percent over the past 15 years; 13. 4 percent over the past 10; 17.8 percent over the past 5 years; 15. 6 percent over the past 3; 8.4 percent over the past 2 years; and 27.1 over the past 1-year, according to Lipper, Inc.
Identifying trends or trying to figure out which fund type is going to be the next solid performer just by looking at past performance figures has never been easy. Now, with more funds than ever and a volatile market place, the task is even tougher. So, to try and make some sense of it all, I went to the keeper of the numbers, A. Michael Lipper, for some clues.
Lipper, who founded Lipper Analytical Services in 1973 and sold it to Reuters Group in 1998, is chairman of Lipper, Inc., a chartered financial analyst and has been a securities analyst for almost forty years. With that tenure and his accumulated market wisdom, here's how he currently sees things:
So what could be new areas to look at? Certainly selectively, I would not exclude Latin America; we have two quarters of small ( cap stocks) being better than large ( cap stocks) and than may have some legs; we had almost a two-month flirtation with value that turned down recently---one would think that if you expect an expanding economy, and that may be questionable in the immediate future, that long-term value could have a play.
- Q:In 1989, if you looked back 10 years, the top performing fund category was Global Funds. Look back 10 years today and it's been S & P 500 Funds. Have any idea of which fund type might be leading the pack going forward?
A: I don't know. And the reason is that we are in a period in which time gets telescoped. What used to take 5, 10 or 15 years, is now happening in a year. Or a quarter.
- Q:Does that time shift change basic investing principles?
A: The basic principle is that markets, over the long-term, are efficient and are seeking value. And, any one type of security or asset class that's on top, because of its very success, gets bid up beyond its equilibrium point while at the same time, some other asset class is being neglected. So there is a regular rotation. Regular in the sense that it is a recurring phenomena.
For example, we've just had a very remarkable one week performance out of gold that took it from tail-end to the second best group for the quarter. Longer term you have Japan now being very strong after many many periods of being quite a poor performer.
- Q: What's the average mutual fund investor to make of all that?
A: I think investors always have to be on guard about putting too much of their money in any one area particularly when it is increasingly popular. This is the whole notion behind investing against the headlines.
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