High-yield bond funds lost an average of 26% in 2008, but the range of the performance was astounding, Andrew Buddy Donohue, director of the SEC division of investment management noted in a speech Thursday before the Practising Law Instituteranging a full 85 percentage points between 7% for the best-performing fund to negative 78% for the worst-performing. And ranges proved to be incredibly wide for all asset classes, with 70% of actively managed funds underperforming their benchmarks in 2008, Donohue noted.
Given the wide disparity in performance that mutual funds delivered in 2008, and the industrys duty to encourage investors not to rely on short-term but long-term performance, Donohue reasoned, funds should not be overleveraged. Nor, perhaps, should they use complex hedging. Not all innovation or ingenuity is positive, Donohue said.