Mutual funds see massive performance variations following Trump's win

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(Bloomberg) -- Not all mutual funds are created equally, especially in Donald Trump's America.

The days of low return dispersion — in other words, of slender differences between the returns of different funds — may be coming to an end. According to a new note from Barclays, there's been a sharp polarity between winners and losers after the president-elect's surprise win.

"Based on our database of over 800 active equity mutual funds, we find that 54% of mutual funds underperformed their benchmark since the election," the team, led by Keith Parker U.S. head of asset allocation, said in the note. "However, the performance dispersion since the election has varied greatly, with roughly 4 percentage points between the top and bottom 10% of equity mutual funds," they write.

The similarity of the returns that can be expected from very different asset classes has been a running theme since the 2008 financial crisis, as easy monetary policy boosted correlations. The recent shift in performance reflects the dawning of a new investment climate, and could cause extra headaches for underperforming managers as it comes just prior to the end of the year — a time when clients are especially prone to examining and re-adjusting their portfolios.

"We worry that outsized mutual fund redemptions next month, when they typically jump, could provide further fuel for the recent disruptive rotations if the reallocation from active to passive (and also within active) were to accelerate, as we believe," the analysts write, adding that redemptions from equity mutual funds accelerated over the past two weeks, a concerning trend as the final month of the year is typically the biggest when it comes to redemptions.

So far, investors have started putting money back into equities and out of bonds, with U.S. equities seeing the biggest boost. According to Barclays, U.S. equity funds saw their largest inflow ever last week at $31 billion. However, much of that was thanks to ETFs, as equity mutual funds experienced redemptions during the past two weeks — a fact Barclays cites in making the case that U.S. funds are at risk of redemptions.

The Financial Select Sector SPDR ETF's $4.9 billion of inflows, the most it has amassed over one week in last three years, is one sign of "Trump-inspired bullishness," an analyst says.
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As CreditSights analysts Glenn Reynolds and Nathan Wenger said in September, "The monetary backdrop for this market is not sustainable and there will be some more pronounced winners and losers ahead."

Little did they know that Trump would be the impetus for that change.

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