What’s Been Happening?
It is well documented that most investors, including most professional money managers, don’t beat “the market” over time. This is one of those rare times when, looking back, it appears the professionals are beating both the dartboard and the unmanaged indexes. But a closer look tells a different story, at least with mutual funds.
Over the five years ending 8/31/2003, fewer than half of actively managed mutual funds managed to beat the indexes to which they should be compared. Categorizing mutual funds by the size of the company they invest in (Large, Medium and Small) and by investment style (Value, Blend, Growth) yields nine categories. The recent out-performance of Small Capitalization Stocks, which are typically over-represented in mutual funds, does more to explain their out-performance than any special skill in stock picking or market timing.
Trends to be Aware of
Investor sentiment is once again higher than average, buoyed by the rebounding bull market. Meanwhile growth in the economy remains sluggish and unable to kick-start meaningful job growth. Jobs are the ultimate support for consumer confidence. The lumbering economy is on track toward making George Bush the first modern president to finish a term with fewer jobs in the economy than when he started.
Investments in stocks and bonds are best measured against their alternatives. Bank deposits and money markets continue to offer paltry returns. Rates are unlikely to rise until the economy really starts to grow and full employment is in sight. Low interest rates keep other financial assets looking attractive.
What To Expect From Here –
We wrote last time that the third year of a presidential cycle is often the best for investors. It is likely we have already enjoyed most of that phenomenon. It is best to expect average returns from here on out, knowing that we will be surprised along the way. Technology stocks have come back somewhat, proving that old habits die hard, and prices are already quite high relative to their prospects.
Some Numbers for Comparison:
The following table compares the main indices against which fund performance is measured. All figures are for the periods ending 9/30/03.
|
Index |
What it Measures |
Last 3 Mos. |
Last 12 Months |
3 Years, Annlzd |
5 Years, Annlzd |
|
|
Standard & Poors 500 |
U S Stocks w/div |
2.64% |
24.40% |
-10.33% |
1.52% |
|
|
Russell 2000 |
Small Stocks |
9.07% |
36.49% |
-0.83% |
7.46% |
|
|
Morgan Stanley EAFE |
Foreign Stocks |
8.18% |
26.54% |
-8.38% |
0.87% |
|
|
Thompson Financial Tech/Comm. Funds |
Technology Funds |
9.43% |
56.08% |
-31.61% |
-0.28% |
|
|
Real Estate Inv Trusts |
Real Estate |
9.47% |
25.17% |
15.21% |
11.52% |
|
|
Lehman Bros. Ag Bond |
Bonds |
-0.14% |
5.40% |
8.94% |
6.62% |
|
|
CPI |
Inflation |
0.49% |
1.99% |
2.05% |
2.44% |
|
Source: Thompson Financial
