Fund performance

After dropping 38.9% in 2008, slightly worse than the S&P 500’s 37% decline, the average stock mutual fund is up 9.9% year to date, quite a bit better than the index’s 5.3% return, The Wall Street Journal reports.

Although there have been reports of one-third of employers cutting back on or eliminating 401(k) matches, for the most part, they have continued to add other features to the plans to increase participation and investment rates, Charles Schwab found. And that has helped most workers stay the retirement savings course.

NEW YORK -- Investors tend to stay quiet about financial products they don't understand as long as the profits keep coming in, but when the tide goes out and profits fall, they want answers.

A recent cartoon in The New Yorker surely sums up many retirement investors' feelings toward their financial advisers: It depicts them being sacrificed to a volcano.

Before the bottom fell out of the markets last year, most asset management firms thought they already had robust risk management processes in place. Now they're not so sure.

Shares in publicly traded mutual fund management companies have soared 54% this year, compared to approximately 5% for the Standard & Poor's 500 index, but that growth may be about to slow down as fund companies catch up on paying expenses they have been putting off, USA TODAY reports.

Mutual fund managers are moving back into the stock market, finally putting cash they have been holding onto for more than a year back to work, MarketWatch reports.

Affluent investors' confidence increased in May for the third consecutive month, according to a survey by Spectrem Group.

Hedge funds posted their best monthly performance in nine years, with the HFRI Fund Weighted Composite Index rising 5.2% in May, Hedge Fund Research indicated.

Citing the positive effects of diversification and continued contributions, Vanguard announced that the median decline in the three million defined contribution accounts it administers fell 17% in the 15 months ended March 31, as opposed to the market’s overall 44% decline.

Finally, insiders launched candid criticism at the mutual fund industry last week, to help it respond sensibly to the economic meltdown and reposition itself to regain investor trust.

Thanks to shady money managers like Bernie Madoff who ruined it for everyone, the lucrative and surreptitious heydays of hedge funds may be gone for good.

From recommending different products to rethinking their risk management strategy, some financial advisers say they have changed their approach in the wake of last year's market slump. Indeed, many retail investors remain on the sidelines of the stock market, with assets in equity funds only half of what they were in late 2007 before the economic crisis began and the market lost 56% of its value.

Finally, insiders launched candid criticism at the mutual fund industry last week, to help it respond sensibly to the economic meltdown and reposition itself to regain investor trust.

NEW YORK - Many financial advisers are feeling extremely guilty for failing to protect their customers from the 30% equity drop in 2008, but it will take more than remorse to earn clients' forgiveness.

Money market fund assets fell by $25.22 billion to $3.764 trillion in the week ended June 3, the Investment Company Institute said.

Capital Group will cut 9% of its global workforce of 9,000, or 820 jobs, this month. This will be American Funds’ parent company’s second round of layoffs, in response to a 29% decline in assets from $1.2 trillion to $850 billion. The company eliminated 500 jobs in January.

The mutual fund industry may be waiting in vain for inflows to return once the stock market shows steady signs of life, Dave Swanson, founder and managing principal of SwanDog Strategic Marketing, warns in a new whitepaper, “How to Save the Mutual Fund Before It’s Too Late.”As he rationalizes it, “In terms of rebuilding lost trust, here we come again, asking fund investors and sellers for another chance for the second time in the last seven years.”At age 85, the mutual fund value proposition needs revisiting. Otherwise, it will continue to lose market share to exchange-traded funds and other index and passively managed products, along with quantitative models and guaranteed investments “where investors and advisers have more control over the outcome.”The most important thing that fund companies can do, Swanson says, is give back portfolio managers their stock picking powers, so that they are not constrained by strict and narrow investment mandates that tie them to style and capitalization constraints.Second, he calls upon fund companies to revisit risk management and make this an important part of every customer communication.Fund companies need to make a case for active management by demonstrating greater accountability through performance fees that tie management fees directly to results, he adds.In addition, the tax structure is no longer competitive compared to managed money and ETFs. “Years like 2008, when many investors faced a taxable event despite deep losses, only further undermine investor trust and confidence in funds,” he said. “Now is the time to push for change, while we have capital losses on the books.”In conclusion, Swanson calls upon fund companies to respond in real time to market and economic conditions and to overhaul their shareholder communications completely. “Demand that your marketers and product team put forth a plan for how they are going to adapt their efforts to today’s environment and how they will start telling your story more effectively,” he says.

With his own fund down 35% in 2008, Bob Rodriguez, manager of the FPA Capital Fund, says the industry’s performance last year “stunk,” MarketWatch reports.“We managers did not deliver the goods, and we must explain why,” he told colleagues at the Morningstar Investment Conference.Rather than sticking with mutual funds’ traditional investment discipline of being fully invested and tracking a benchmark, Rodriguez said, fund managers should have wakened up to the magnitude and “extraordinary risk” of the financial crisis and taken a different tack.“Whether in stocks or bonds, it seems as though the same old strategies were followed: be fully invested and don’t diverge from your benchmark too far,” he said. “If active managers maintain this course, I fear the long-term outlook for their funds, as well as their employment, will be at high risk.”Funds must adjust their investment mandates so that they will be better focused on macroeconomic conditions and be able to respond to adverse market conditions in the future and retain investor trust, he urged.“A more focused strategy will be necessary to excel,” he said. “If active managers continue to adhere to their old practices, we should see a contraction in the active mutual fund management universe in the next five to 10 years.”

Putnam Investments, after being hit by the market-timing scandal, poor performance and the loss of 75% of its assets, is “starting to turn around,” Great-West Lifeco CEO Allen Loney told Bloomberg. Great-West acquired Putnam from Marsh & McLennan Cos. for $3.9 billion in 2007.