NEW YORK – As stock market analysts were starting to tally up Wall Street’s first-quarter performance, they came up with a bleak but unsurprising result: Stock mutual funds in just about every corner were a losing proposition.
With few exceptions, such as funds that focus on gold or those that bet stocks would fall, most investors saw steep declines in their fund holdings in the quarter.
Figures from fund tracker Lipper show negative returns that approached or reached double digits in most stock fund categories; Lipper’s calculations included results through Thursday. From large-cap value funds (down 9.2 percent) to small-cap growth funds (down 14.4 percent), many investors emerged from the volatility of the first quarter with less money than at the start of the year.
‘Disappointed’
“With a few exceptions across a couple of nontraditional asset classes like short-bias funds, investors are likely to feel very disappointed by this quarter’s returns,” said Lipper analyst Jeff Tjornehoj, making reference to “short” funds that profit when stocks fall.
While occasional declines are bound to confront any long-term investor, the latest quarter’s pullbacks could leave many people hesitant to open the statements that will soon arrive in the mail.
The market gyrations that stole headlines and a bit of Wall Street’s swagger during the quarter left many investors casting about for areas of safety. But the quarter’s statistics show there were few options for investors to avoid some kind of hit, beyond shifting holdings to government bonds or cash. And investors who simply retreat to the sidelines often risk missing rebounds and generally end up faring worse than those who stay invested.
Economic fears that began to percolate in the summer and fall took on greater urgency in the first quarter following a worrisome parade of data on areas like employment, housing and consumer spending. Investors’ discomfort grew in recent weeks with the near collapse of a liquidity-starved Bear Stearns. Interest rate cuts and stopgap measures by the Federal Reserve to encourage wary lenders into extending credit might have corralled some of Wall Street’s fears, but the moves weren’t able to shield most investors from a dismal quarter.
With one session to go, the Dow Jones industrial average is off its lows but still down 7.9 percent for the quarter. And the broader Standard & Poor’s 500 index – the yardstick for evaluating many mutual funds – is down more than 10 percent.
Global spread
The problems radiating from the U.S. housing market and fears of a global economic slowdown clearly seeped further into the world’s financial markets during the quarter.
China region funds, for example, had a negative return of nearly 23 percent for the quarter. While the once-hot funds had a negative return of 3.3 percent in the fourth quarter, they’d shown a gain of 55 percent in 2007.
Even as gas and crude oil prices set new highs during the quarter, natural resources funds saw their returns falling 4.7 percent after rising 7.1 percent in the fourth quarter and 40 percent last year.
Overall, U.S. diversified equity funds, which tend to have varied holdings rather than focusing on a particular sector, saw their returns fall 9.9 percent for the first quarter.
The smaller stable of sector funds, which focus on specific areas like financial services or real estate, had a negative return of 7.8 percent for the period.
World equity funds – focused on investments often beyond U.S. borders – had a negative return of 9.7 percent.
And even the few areas to manage gains probably didn’t benefit a wide swath of investors. Dedicated short-bias funds saw an 11.7 average return for the quarter. But there are only about $15 billion in assets in such funds – well below the $488 billion in multi-cap growth funds, for example.
And funds focused on gold, a volatile holding that some investors turn to for safety, had a 7.9 percent return for the quarter.
