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The Reformed Broker

Mutual funds: an 'F' for performance

Mutual funds have fared miserably so far in 2011. Only 13 percent of actively managed mutual funds are beating their benchmarks.

By Joshua M. BrownGuest blogger / September 4, 2011

Traders work on the floor of the New York Stock Exchange on Friday in New York. So far this year, most mutual funds have lagged their benchmarks. But strangely, that may be a good sign for the fall.

Jin Lee/AP

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Who needs actively-managed mutual funds? No one does in a volatile year it turns out. Only 13% of actively managed mutual funds are beating their benchmarks this year, a horrendous Letter F report card for just about the entire multi-trillion dollar industry.

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From Investment News:

Among 2,806 funds tracked by the brokerage, 47 percent underperformed their benchmarks by more than 2.5 percentage points this year, the most since the 55 percent recorded in 1998. Only 13 percent of the funds beat the market by the same margin. The underperformance accelerated last month, with the proportion of trailing funds almost doubling from July, according to JPMorgan data.

But here's the good news...

JPMorgan also says that since 1995 "the market rallied in the last four months of a year in all but 2008, with the S&P 500 rising 8.5 percent on average." And they note that in years where a majority of fund managers are underperforming, there is an even greater tendency for stocks to go up as all that lagging money begins chasing returns - buying stocks, adding risk.

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