Fund performance

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.

Reports of the death of stocks and equity mutual funds have been greatly exaggerated.

Berkshire Hathaway’s profits tumbled 96% in the fourth quarter to $117 million, from $2.9 billion a year earlier.

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 Reynolds, its president and chief executive."We're going to run an open platform," he said. "Yes, it would be great if Putnam was part of the choices, but if not, for whatever reason, that's fine."Reynolds, who took over the company in July, started Fidelity Investments' 401(k) business from scratch and turned it into an industry giant. He is now trying to work quickly to create similar magic at Putnam."Competing for Fortune 100 companies may not be a goal right out of the chute, but we definitely want to be out there this year with a competitive product offering," he said. "This is not a five-year game plan; I think we can be a player in a relatively short period of time."Leading the charge will be Edmund Murphy, a Fidelity veteran Reynolds hired early last month as the head of defined contribution. He will report to Putnam's global marketing and products head, Jeffrey Carney, a Fidelity and Bank of America Corp. veteran Reynolds hired in October. "I think the team we've put together thus far is pretty impressive," Reynolds said.Success in defined contributions would give Putnam some badly needed good news. On Feb. 11 it announced plans to cut 260 jobs, or 11% of its work force, as part of a changed distribution strategy. Its assets have dropped more than 60% in the past six years, to $101 billion as Jan. 31. A 2003 market-timing scandal, several years of poor equity mutual fund performance, and last year's market meltdown have left it battered.Marsh & McLennan Cos. Inc. sold Putnam in 2007 to Canada's Great West Lifeco Inc. for $3.9 billion.Reynolds' earliest initiatives at Putnam were aimed at reversing the losses in its equity funds, which he admits were performing "to no one's satisfaction." A restructuring of the equity investment division announced in November put responsibility for each fund in the hands of a specific manager and created a pay-for-performance system.Putnam has also hired dozens of fund managers, analysts, and others on the investment side.It also pruned its fund lineup, and early this year it announced the industry's first suite of target absolute return mutual funds. The funds, which Reynolds said he envisions as a component of Putnam's 401(k) offering, are designed to provide positive returns over time in rising or falling markets.Tom Modestino, a senior analyst with Cerulli Associates Inc. in Boston, said in-house management of a large number of 401(k) assets is increasingly important in the 401(k) business, since asset management, not record keeping, drives profits. "Record keeping in the 401(k) industry is expensive, and it never gets cheaper," he said.A spokesman for Putnam said it will target plans with $1 million to over $500 million in assets. It was a power in the 401(k) market in the 1980s and 1990s, but Mr. Reynolds said after the dot-com bust, it backed away from the administrative side of the business to focus more on distribution of its funds.The sinking stock market does not change the fact that 70 million baby boomers are set to retire, he said, and the number of 401(k) administrators is poised to shrink.Reynolds said Putnam wants to be a major player in asset management and product development, plan administration and education, and service delivery for sponsors and participants. "If you are going be a player in the 401(k) business, you have to have a commitment to all three legs of the stool," he said.

Cash influxes into municipal bond mutual funds slowed a bit again last week as muni prices continued to cool off.Investors entrusted $470 million to muni funds that report weekly numbers during the week ended Feb. 25, according to AMG Data Services. That represents a dip from $535.9 million the previous week and more than $700 million the two weeks before that.Still, this was the eighth consecutive week of inflows following 15 weeks of outflows at the end of 2008.Fund managers are now enjoying steady cash flow following a period when assets at all muni funds - including those that report monthly - shriveled to $342 billion from $391 billion, reflecting both outflows and market declines.Earlier this year, funds enjoyed their biggest inflows since May. They followed a red-hot rally in munis during which the yield on the triple-A in 10 years, based on the Municipal Market Data scale, compressed from 4.21% on Dec. 15 to as low as 2.84% on Feb. 12.That rally has since stalled, with the yield creeping back up to about 3.1%, according to MMD.

Closed-end fund shops like Eaton Vance could historically count on steady asset-based fees and additional profits from issuing auction-rate preferred shares. But due to the problems in that market, the company’s first quarter revenue and fees have fallen sharply, dragging down its net income 57%.

Amid all of the gloom, some stalwart financial planners are telling their customers that there are unheard of bargains in the stock market, the National Post reports.

The average account balance of 401(k) investors that MassMutual administers fell 25% in 2008, but, nonetheless, participants are sticking with the plans.

Fidelity reported Tuesday that assets under management fell 22% in 2008 to $1.25 trillion.

Mutual funds' 2009 sales outlook is modest, according to Keefe, Bruyette & Woods.

With the stock market so beaten down, investors are likely to continue to gravitate to bond funds, including those that invest in corporate bonds, The Wall Street Journal reports.