While the stock market limped along to meager gains in 2005, investors who had money in well-managed domestic stock-mutual funds outdid...
NEW YORK — While the stock market limped along to meager gains in 2005, investors who had money in well-managed domestic stock-mutual funds outdid the overall market, enjoying mid- to high single-digit returns.
As of Dec. 29, the 7,361 U.S. diversified equity funds, which have more than $3.3 trillion in assets, had an average return of 7.16 percent — far better than the 3.51 percent increase in the Standard & Poor’s 500 index for the same time period, according to mutual-funds watcher Lipper.
Funds comprising growth and core stocks outpaced more conservative value funds, while mid-cap companies outperformed both large- and small-cap funds. Mid-cap core funds had the best average return, 10.72 percent, followed by mid-cap growth funds at 10.36 percent.
Bear-market funds, which hedge against market downturns, saw the slimmest returns, an average of 2.56 percent year-to-date, while S&P 500 index-objective funds, which attempt to replicate the returns of the index itself, posted an average 4.87 percent return.
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“I think you saw a lot of fund managers latch on to the stock market’s momentum in the fourth quarter, and that helped boost returns,” said Bill Sickles, senior-research analyst at Lipper. “And the mid-caps were good for investors looking for more nimble companies, but without the risk that goes with small-caps.”
November’s strong run-up in stocks helped mutual funds to modest fourth-quarter returns despite Wall Street’s December malaise. U.S. diversified equity funds saw an average return of 2.64 percent for the quarter. Again, growth stocks led the pack in returns, with small-cap funds lagging and bear-market funds posting negative returns.
Sector-specific funds, which focus on stocks within a selected industry, saw average 2005 returns of 11.5 percent, much of that attributable to sharp gains in energy and utility stocks.
Natural-resources funds, which include oil and gas stocks, saw average returns of 40.86 percent for the year, although they posted negative returns of 0.68 percent for the fourth quarter as oil prices fell.
Likewise, utility funds saw average annual returns of 13.94 percent, though quarterly returns fell to a negative 4.14 percent.
International funds sharply outperformed domestic funds in 2005, as strong economic growth in Latin America, Europe and Japan fueled stock prices there. Funds investing in Latin American stocks saw an annual return of 53.67 percent, followed by Japanese-focused funds with an average 2005 return of 34.6 percent.
For the fourth quarter, a surge in the Tokyo stock markets helped Japanese funds to an average return of 18.46 percent, while the historic run-up in gold prices pushed international gold funds to a 14.89 percent average return.
“It was a pretty decent year for domestic funds, but when you look at the sectors and the world funds, there’s a lot of competition out there for investors’ dollars,” Sickles said. “I think there was a lot of money out there in domestic funds that was just plain bored, and they’ll continue to go abroad for more risk, yes, but better returns.”
International funds also led the list of top performers for both the fourth quarter and for the year. Japan’s market turnaround helped ProFunds’ Ultra Japan fund to post a 40.44 percent return for the quarter and a whopping 94.63 percent return for the year.
Ameritor’s Investment fund had the dubious distinction of posting the worst returns for the fourth quarter, with a negative return of 36.36 percent, and for all of 2005 with a negative return of 68.18 percent.
Second in both categories was the American Heritage Growth fund, with a fourth-quarter return of negative 20 percent and a 42.8 percent negative return for the year.
The other worst performers for the fourth quarter were the Rydex Series FDS Commodities fund with a 12.99 percent negative return and the Merrill Lynch Real Investment A fund with a 12.61 percent negative return.
For 2005, the other worst-performing funds were the American Heritage Fund and the Frontier Equity Fund, both of which posted a negative 33.33 percent return.