Mutual funds post strong 3rd quarter
By Amy Baldwin
NEW YORK Stock mutual funds may have scored their second straight quarterly advance during the three months of summer, but they still have a long way to go before investors recover the losses suffered in the three-year bear market.
U.S. diversified stock funds, which include shares of U.S. companies of different sizes and industry, had a positive third-quarter return of 4.4 percent, according to data from New York-based fund tracker Lipper Inc.
Sector funds, which specialize in certain sectors or industries such as technology and real estate, had a quarterly gain of 6.1 percent, according to Lipper.
But a look at annualized performance for the past three years makes it clear how stock funds suffered and how much further they have to advance. U.S. diversified equity funds have an annualized three-year negative return of 8.90 percent; sector funds, an annualized negative return of 10.82 percent, according to Lipper.
The upbeat third quarter extended stock funds' gains from the second quarter. The last time U.S. diversified stock funds had two consecutive quarterly gains was the fourth quarter of 2001 and the first quarter of 2002.
And, the last time sector funds had such a winning stretch was the four quarters that spanned from the fourth quarter of 1999 through the third quarter of 2000, Lipper said.
The back-to-back winning quarters reflected investors' increasing appetite for equities, which are higher-risk but potentially more profitable than bonds.
"We have been waiting and waiting, for years for a second-half turnaround and it hasn't materialized. It looks like this year it might," said Kathryn Barland, senior research analyst at Lipper Inc.
Not surprising given this year's performance on Wall Street, stock funds' year-to-date returns are quite robust 18.05 percent for U.S. diversified funds and 24.76 percent for sector funds, according to Lipper.
Analysts say the key to mutual funds' longer-term recovery is having more quarters of positive economic news and upbeat earnings reports.
"We need to see job growth and that has been a big drag certainly on consumer spending because it hampers consumer confidence. Once that's addressed and corporate spending picks up in a noticeable way we will start to see more stabilization," Barland said.
Peter Cardillo, president and chief strategist of Global Partner Securities Inc., said he's optimistic after hearing fewer companies issue warnings for the third-quarter results they will begin reporting later this month.
"That is quite encouraging and simply means we are headed for a very decent third-quarter earnings reporting season," he said.
Long-term fund shareholders can take heart in the fact that their returns have been solid.
U.S. diversified stock funds have a 10-year annualized return of 8.24 percent and a 15-year annualized return of 10.29 percent, according to Lipper. Sector funds, meanwhile, boast a 10-year annualized return of 8.88 percent and a 15-year annualized return of 11.98 percent.