Fund performance

The mutual fund industry is eager to hear the outcome of a U.S. Supreme Court case that could determine the fate of the Gartenberg standard, an old legal precedent used to determine whether mutual fund fees are too high that has set a high burden of proof for investors and spared the industry from lawsuits.

Investors in need of cash or traumatized by the Bernard Madoff scandal will continue to redeem hedge fund shares in droves, HedgeWorld News predicts, shrinking the industry by 30% this year to as low as $1 trillion. That was the size of the industry in 2005.

Fidelity Investments is treating investors’ unease with the markets as an opportunity to help them revisit their retirement goals, risk tolerance, household budget and preparedness for job loss, by holding 500 seminars around the nation, offering online tools and running ads.

The financial crisis has taken a serious toll on millionaires, with their ranks falling 27% in 2008 from 9.2 million at the beginning of the year to 6.7 million by year-end, Spectrem Group found. That brings the total down to 2003 levels, when there were 6.2 million millionaires in the nation.

Despite the plummeting economy, most 401(k) participants are staying calm and behaving normally, according to 2008 year-end data from the Investment Company Institute.

Putnam Investments will waste no time reinvigorating its defined contribution business, and its long-struggling equity funds will have to earn their way into the mix, according to Robert L. Reynolds, its president and chief executive.

Over the past year, as the S&P 500 has hit 1997 levels, the U.S. gross domestic product shrank 6.2% in the fourth quarter of 2008 and investors' retirement savings have been severed in half, we have hailed the resilience of investors' faith in the markets. Our customers have continued to believe in the soundness of investing in mutual funds, the premise of long-term investing and modern portfolio theory, and the overall wisdom of saving for retirement.

In order to achieve meaningful reform of the financial services industry, Congress should create two key regulatory positions to oversee financial markets, according to a proposal last week by the Investment Company Institute.

Growth fund managers typically seek out companies whose earnings increase 10% or more a year, but with the economy sagging, those managers are applying metrics they’ve never used before, The Wall Street Journal reports.

With stocks now worth less than 55% of their peak in October 2007—a decline of $11.1 trillion in market wealth—investor sentiment has been shattered and some market experts believe the process of finding the market bottom must begin all over again.

Equity mutual funds suffered redemptions in 2008, only the third time in their history that they have had outflows. Actively managed funds lost $221.08 billion, while index funds took in $17.6 billion. "Some people who get their hands burned by these market drops move from active to passive [management], and every time some of them stay there," Scott Burns, an analyst with Morningstar, told Dow Jones. Passive investing "gains more converts" each time the market crashes.

In response to the market downturn and wide confusion among investors about what they should do, Charles Schwab has published a number of articles on its website offering guidance. Schwab is also holding seminars at its branches, town hall discussions and webcasts.

Global hedge funds assets declined more than 30% in 2008 to $1.8 trillion, according to a report issued by publisher HedgeFund Intelligence. The sharpest declines occurred in the second half of last year.

Independent financial advisers are somewhat optimistic about the economy, with 44% saying they believe the recession will end this year, and another 41% pointing to next year, Charles Schwab found in a survey of 1,200 advisers.

Equity mutual funds suffered redemptions in 2008, only the third time in their history that they have had outflows. Actively managed funds lost $221.08 billion, while index funds took in $17.6 billion.

Will Danoff, manager of the Fidelity Contrafund, admits he was too bullish on technology and retail stocks, but says he was right to pass on low-priced financial services stocks.

Index equity mutual funds saw average losses of 39.1% last year, while actively managed funds lost an average of 40.5%, according to Morningstar.

For all the education the asset management industry has on the importance of saving for retirement, it doesn't appear to have gotten through to the younger crowd, many of whom have completely unrealistic expectations for their golden years.

In this brutal market, mutual funds that have kept a large stash in cash have performed best, according to Morningstar. Plus, these funds are best-positioned to take advantage of the market once it turns around. "Many of the funds that held up the best in this brutal market have one thing in common-cash," said Greg Wolper, a Morningstar analyst.

Fidelity Investments is expanding its capital markets division by 20%, or 80 positions, in trading, sales, prime brokerage and operations to serve clients trading mutual funds and hedge funds.