The Biggest Losers: Mutual Funds That Fell Flat in May

Why these funds sustained such deep losses last month.


Late last year, Jay Chitnis, a comanager of the YieldQuest Core Equity Fund, predicted that the high-flying stock market would soon take a hit. “In the fourth quarter of 2009, we said that in 2010, there will be a correction that will make the hair on the back of your neck stand up,” he says. By the time the S&P 500 had sunk down into the low 1100s last month, though, Chitnis thought the correction had run its course. “We felt that it was time to move to a much more aggressive risk posture in the fund based on a number of factors lining up,” he says. When stocks’ tailspin continued, YieldQuest Core Equity fell hard. After the dust from May had cleared, the fund had lost upwards of 13 percent in just 31 days, making it one of the month’s biggest losers.

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Chitnis, of course, is hardly the only manager to be caught flatfooted as Europe’s raging debt crisis conspired with the flash crash to drag down stock prices. All told, the Dow Jones industrial average shed 7.9 percent of its value last month. That’s the index’s worst May performance since 1940.

What follows is a list of the worst-performing diversified U.S. stock funds from the month of May. Funds with under $5 million under management are excluded, as are funds whose primary purpose is to employ leverage to magnify the results of an index.

Birmiwal Oasis (May loss: 17.2 percent). With a loss of upwards 17 percent last month, Birmiwal Oasis ran away with the “biggest loser” title. Still, this quirky small-cap fund, which launched in mid-2003, is far from a dud. Even with last month’s loss, it’s still up 13.3 percent year to date. That’s particularly impressive considering that the Dow Jones industrial average and the S&P 500 are both in the red for the year.

YieldQuest Core Equity (May loss: 13.4 percent). After netting a mediocre 21.1 percent return in 2009, YieldQuest Core Equity began struggling this year. Many of its problems stem its management team’s unsuccessful attempt last month to call the market’s bottom. “The residual emotional scars from [the recession] are what have led to this correction being worse than anticipated,” says Chitnis. Still, he expects the S&P 500 to cross the 1300 mark by the end of the year, thereby validating his bets. “We wouldn’t have [our current] posture if we didn’t think we would make up for some of that underperformance and then some,” he says.

Alpine Dynamic Dividend (May loss: 12.5 percent). Alpine Dynamic Dividend, which has graduated over the years from a mid-cap to a large-cap fund, has disappointed investors as of late. After losing 49 percent in 2008, it gained 25.7 percent in 2009. In both years, it was in the bottom half of its Morningstar category. This year has been even more painful: The fund is down 11.2 percent year to date.

Catalyst Value (May loss: 12.2 percent). Catalyst Value Manager David Miller says that one of this portfolio’s virtues is that “in any normal market,” his strategy, which is to own shares of small- and micro-cap companies that are trading near their liquidation values, can help minimize the effects of large swings in the broader stock market. That wasn’t the case last month. “When you have issues like the flash crash, small caps where there’s no analyst coverage [sometimes] end up getting hit harder…just due to changes in liquidity,” he says. Still, Miller’s approach has paid off well in the past: After playing solid defense in 2008, the fund rocketed to a 66.8 percent return last year.

Counterpoint Select (May loss: 12.2 percent). This incredibly compact portfolio suffered when the big names that anchor its portfolio floundered. Notably, the fund has sustained heavy losses this year from companies like Google and Qualcomm. Amid concerns over Europe’s debt issues, Teva Pharmaceutical Industries, an Israel-based drugmaker, has also lost out. Karl Mills, a comanager of the fund, says that Teva’s losses show how even companies with solid fundamentals have been among the casualties of the recent nosedive. “The market’s really not trading on fundamentals in valuations nearly as much as it’s trading on macro factors,” he says. Year to date, this large growth fund is down 9.5 percent.