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3 Battle-Tested U.S. Stock Funds
Tweet Share on Facebook December 9, 2009 CommentAll too often, mutual fund prospectuses feel eerily like those medicine commercials that have endless lists of potential side effects. The only difference, it seems, is that while both mutual funds and medications have led to plenty of unanticipated cases of headaches and profuse sweating over the past year, mutual funds have been more likely to wipe out your retirement savings in the process.
[See Should You Deep-Six Your Mutual Fund?]
As these deep losses pummeled investors' bottom lines, they also shattered the notion of the "safe" stock fund. "In the previous bear market, you had pockets of strength so that a number of stocks and a number of stock funds still made money," says Russel Kinnel, Morningstar's director of mutual fund research. "But in '08, [that was] virtually impossible."
Still, not all stock funds are created equal, and some are obviously safer than others. With that in mind, U.S. News set out to find three U.S. equity funds that have proved their ability to generate strong returns over long periods. Notably, the three listed below pass the following screens: Each is in the top 20 percent of its Morningstar category for the trailing 10 and 15 years, has an expense ratio and three-year standard deviation (a measure of volatility) below its category averages, and receives Morningstar's "low risk" rating.
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SEC Promises to Rethink 12b-1 Fees
Tweet Share on Facebook December 8, 2009 CommentHere's a riddle: What's hidden, questionably used, and capable of costing investors $13 billion in a single year? The answer, reform-minded advocates say, is 12b-1 fees. For years, investors have bemoaned the fees, which are buried in expense ratios and purportedly used for advertising and promotion, but their complaints have yet to yield tangible results. During a conference earlier this month, Securities and Exchange Commission Chair Mary Schapiro indicated that this could be about to change.
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Mutual Funds: Why the Cup Is Flowing Over
Tweet Share on Facebook December 8, 2009 CommentOne of the many ironies of mutual fund investing is that by the time analysts pinpoint a trend, it's often too late for investors to capitalize on it. Even so, some trends are as easy to detect as they are long lasting. Flow patterns—which quantify how investors move into and out of funds—are among them. For the past 37 weeks, mutual funds have had net inflows, and this movement appears very unlikely to let up soon.
[See the 10 Strangest Mutual Funds.]
In a paper published last month, ReFlow Management, a group that helps fund managers respond to asset flows, explored the changing dynamics of fund purchases. According to the paper, when assets under management either increase or decrease, fund managers tend to make flow-driven trades that weigh down performance. Examples include selling securities to meet redemptions (outflows) or investing at inopportune times to avoid large cash positions in the aftermath of inflows. As evidence that this harms investors, the paper cites studies indicating that when managers make strategy-driven trades, each dollar they trade pushes up the value of the portfolio by 71 cents; each dollar traded for flow-driven reasons, meanwhile, decreases returns by 86 cents.
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Mutual Fund Shareholders Reject Divestment Proposals
Tweet Share on Facebook December 7, 2009 Comment (1)Shareholders in funds from two well-known companies have in recent weeks rejected proposals to divest from Sudan. Investors in 16 American Funds and two Putnam funds shot down attempts from fellow shareholders to force their managers to pull out of companies that support the Sudanese government. While hardly surprising in isolation, these results add to the setbacks encountered by divestment advocates and raise new questions about the viability of attempts to force the hands of the most prominent fund companies.
[See Should You Invest in Socially Responsible Funds?]
At American Funds and Putnam, small groups of investors brought the proposals before their peers, who rejected them at shareholder meetings last month. The main goal of the proposals was to halt investments in Chinese oil companies, such as PetroChina, that have financial ties to the Sudanese government. Since each of the 18 funds voted separately, results varied widely. Overall, though, Putnam investors were more supportive, with the divestment initiative getting 21 percent of the votes from one fund's shareholders and 24 percent from the other's. At American Funds, the support ranged from 8.5 percent to nearly 12 percent.
