Trying to call the types of funds that are going to have high performance scores from quarter to quarter or year to year is almost an impossible task. This year, for instance, the biggest gains in equity funds during the third quarter were found in financial and biotech funds. Look at year-to-date performance, however, and it's another story.
Those crowing about how much money their funds have made them so far this year are likely to be health/biotech fund investors, they were up on average 60.29 percent, through Sept. 30; real estate fund investors, up on average 21.61 percent; natural resource fund investors, up an average of 20.98 percent; and those invested in mid-cap funds, up 19.24 percent for the year, according to Lipper Inc.
And, with the average diversified equity fund up 2. 67 percent for the quarter and 6.46 percent for the year; all categories of world equity funds down for the quarter other than Canadian Funds, they're up 4.04 percent and 23.48 percent for the year; sector funds up for 5.52 percent for the quarter and 15.81 percent for the year; and mixed equity funds up 1.55 during the third quarter and 3.39 percent over the past nine months, anyone forgetting to have a portion of their assets invested in cash might want to rethink that decision.
Money market mutual funds during the third quarter gained an average of 1.50 percent; for the year they are up 4.25 percent. That's not too shabby for a packaged investment product that scores lowest on the risk meter and although returns are not guaranteed, money market mutual funds have historically provided investors with positive returns year after year after year.
If you're wondering how the race between active and passively managed funds is going the answer is, not like it used to.
From 1989 to 1998, the Wilshire 5000 equity index, it tracks all U.S. stocks, was up on average 17.8 percent per year while the average actively managed U.S stock fund returned an average of 15.22 percent, according to Lipper Inc. In 1999, the tide turned as the average actively managed stock fund gained 28.74 percent and the average stock index fund gained 19.9 percent.
Last year, 84 percent of actively managed portfolios beat the performance of the S & P 500 funds. This year the situation is similar as 83 percent of actively managed funds have beaten the S & P 500 index funds.
On another note, if you're a shareholder and been notified that your fund is liquidating, don't panic. It happens regularly and isn't necessarily bad news.
At the end of the third quarter, 176 different mutual funds had liquidated their assets to shareholders, according to Wiesenberger, a Thomson Financial and Rockville, MD based mutual research company. In 1998, a record 222 funds liquidated their assets.
Typical reasons for closings include poor performance, an inability to raise new assets, a shrinking asset base, the fund not being profitable and mergers and acquisitions. Regarding profitability, industry statistics indicate that a mutual fund needs to pass $50 million in assets to be profitable. As for mergers and acquisitions, when fund families are purchased by other families or financial institutions, those with like investment objectives are often combined. So, one fund closes as another picks up new assets and shareholders.
Also, with the proliferation of various classes of fund shares---there's an alphabet of class shares beginning with the Class A, or front-end load funds--- not all have been able to survive the long haul.
Five of the biggest funds liquidated through August, 31 this year include: Phoenix Seneca Mid Cap Portfolio, it began in Nov., 1989 and was liquidated in March, 2000; Munder Value Y, created in August 1995, it was liquidated in June; PIMCO Small Cap Growth Fund, it began in Jan. 1991 and closed in July; Smith Barney Retirement 2000, it opened in August 1991 and closed in Feb.; and Lord Abbett Equity 1990 A , its inception date was in June 1990 and the fund was liquidated this past May.
Correction: I made a mistake in the recent column about the various college savings plans, specifically the Education IRA.
The story stated that earnings in Education IRAs would be taxed as ordinary income when they are taken out. That's not the case. Invest in an Education IRA and you'll pay taxes on your dollars before they are invested. Then when it's time to take the monies out, provided the proceeds are used for qualified education expenses, they won't be taxed.
Similar to ROTH IRAs----which also can be used for college savings plans---money invested in Education IRAs get taxed first, then grow and compound over time, and come out tax-free.
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