Actively Managed Funds Up 15.82%, Beating S&P by Five Percentage Points

After suffering stunning defeats across the board in 2008, equity fund portfolio managers are proving their worth so far this year, with the average actively managed fund beating the S&P 500 by 4.85 percentage points, The Boston Globe reports. The average equity fund rose 15.82% through July, whereas the S&P 500 returned 10.97% over the same period.

As The Globe put it, "living breathing fund managers take a lot of guff as inefficient and unpredictable competitors of unmanned investment vehicles that track market indexes with the cool assistance of computers. But actively managed stock funds are the big winners so far this year."

In fact, the margin is the widest since 1978. Since 1926, equity funds have only exceeded the January through July 4.85% run a total of three times.

That is giving large fund houses reason to celebrate; nine of the 10 largest diversified stock funds at Fidelity are beating the index. Ten of the 14 domestic stock funds at MFS Investment Management are in that league, and all of the biggest stock funds at Putnam Investments are beating S&P.

After the devastation the market took to investors' portfolios-and confidence-in 2008, the returns could not come at a better time. Analyzing how fund managers have been able to deliver such strong returns, it appears that it is due to the fact that so many various sectors are doing so well, including small-caps, mid-caps, technology, energy and finance.

Five Years of 401(k) Investments Wiped Out

The average 401(k) balance is back at the level it was in 2004, according to a report by the Employee Benefit Research Institute-essentially wiping out the past five years of investing.

The median 401(k) balance was $26,578 in June, and the median IRA balance was $28,955, EBRI said. Defined contribution plan balances declined 16.4% from the end of 2007 through June, and IRA balances declined 15%. At the end of 2007, only 40.6% of American families had at least one member invested in a 401(k) plan. However, 66.2% of families owned at least one IRA.

"Americans have a great deal of work to do after the tremendous loss of wealth in 2008 to ensure financial security in retirement," said Craig Copeland, a senior research associate and author of the EBRI report.

Of course, the higher a participant's balance, the greater their losses during the recession. While the average plan dropped 16.4% in the 18 months since the end of 2007, for families with more than $100,000 in income, the losses averaged 22%, and those earning the top 10% saw their balances drop 28%.

Seeing Parents Burned, Young Investors Skittish

Young investors may not have much, if anything, to lose in the stock market, but seeing their parents and grandparents suffer from the market declines following the dot-com crash and then the credit crisis over the past 10 years has taken a severe toll on their risk appetite, The Denver Post reports.

"Unfortunately, I don't necessarily trust Wall Street anymore," said one 26-year-old. "They find ways to make a bunch of crap look good and get people to invest in it."

Another young person, a 23-year-old whose mother lost 40% of her portfolio in the recent meltdown, said he no longer believes in buy-and-hold investing. "That sealed the deal for me in not believing in a long-term focus," he said.

Certainly, investors have reason to be even more pessimistic than they were following the Great Depression, for in the nine years between 1999 and 2008, the S&P 500 declined 1.4% a year. In the nine years between 1929 and 1938, the index declined only 0.9% a year.

Financial planners and mutual fund executives are, nonetheless, encouraging investors to stick with the market, warning that the alternative of moving into cash or low-paying fixed income will not only not prepare them for retirement but will essentially mean negative savings, due to inflation.

"You have to educate yourself enough to understand this is a silver lining," said Christine Fahlund, a senior financial planner with T. Rowe Price. "You will go through bull-market cycles when those shares will be worth more."

T. Rowe Price notes that if an investor had placed $500 a month in the S&P 500 for 30 years starting in 1929, the portfolio would have grown to a whopping $1.9 million. By contrast, if an investor had started investing anytime between 1950 and 1959 when the market was delivering strong returns, they would have ended up with less than half of that: $809,000.

Small 401(k) Opportunities Abound for Advisers: Fido

Citing recent internal and external research, Fidelity Investments said financial advisers can boost their 401(k) business despite the tough market environment.

About 29,000 companies that sponsor 401(k) plans with $50 million or less in assets under management are expected to change advisers soon, according to the 2009 annual "Marketplace Update Report," issued by the Society of Professional Asset-Managers and Record Keepers (SPARK). Also, 75% of workplace-based retirement plans under $50 million use a financial adviser, up from 52% in 2003. Taken together, the numbers suggest that financial advisers have compelling opportunities to boost their 401(k) business, Fidelity said.

Fidelity suggests four ways in which advisers can do that: articulate their value proposition to plan sponsors, evaluate existing 401(k) plans to ensure they are competitively priced, offer fee and service benchmarking to address gaps in service, and provide strategies to hone the design of 401(k) plans and educate employees.

Abby Joseph Cohen Says New Bull Market in Play

Stocks entered a new bull market in March, and the S&P 500 could rise an additional 10% by the end of the year, Abby Joseph Cohen, senior investment strategist at Goldman Sachs, recently declared on CNBC.

Cohen said GDP and industrial production figures will indicate that the recession is over. In fact, Goldman has raised its forecast for GDP growth for the rest of the year from 1% to 3%, citing a need to replenish low inventories. However, the labor market will not improve for some time to come, Cohen said.

"Many companies trying to be very cautious over last year really squeezed inventories down to levels that are unsustainable," Cohen said. "Even without any notable improvement in current demand, companies just need to have more stuff in the back room to get their business done."

The day after Cohen's prediction, the unemployment report came out showing that 247,000 jobs were cut in July, putting unemployment at 9.4%, lower than the 320,000 job losses and 9.6% unemployment rate economists had predicted.

In another report in Fortune, economist Dennis Gartman concurred that a recovery is just getting started. Gartman said that after 35 years of tracking the economy, he pays attention to only a few indicators, most notably jobless claims, which fell to 584,000 for the week ended July 25, down from 658,000 in the week ended March 7.

Next, he looks at a ratio of current to lagging economic indicators on industrial production, income and employment from The Conference Board. If the figures for the current numbers are increasing at a faster rate than the lagging numbers, Gartman said, that indicates that growth is at hand.

However, he warned that economic news could continue to be negative until October, pointing out that "the news is horrible at the bottom of a recession."

Sun Life Planning First U.S. National Ad Campaign

Sun Life Financial is planning its first U.S. marketing and branding campaign, to better enforce its name among American consumers and financial advisers.

The campaign, which will launch in the fourth quarter with an undisclosed budget, will include broadcast, print and online advertisements as well as corporate sponsorships. The Martin Agency of Richmond, Va., the campaign's agency of record, has created ad campaigns for other leading U.S. companies, including Walmart, Geico, Hanes and UPS.

Earlier this year, Sun Life hired Priscilla Brown as its first head of U.S. marketing.

"Sun Life is well-known in its native Canada, but in the U.S. we need to dramatically increase our presence to financial advisers and consumers," Brown said. "Americans will soon learn more about our long history of financial strength and the breadth of our products offering financial security.


(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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