Fund performance

Mutual fund managers Tom Forester and David Ellison stood out from the crowd last year with the two best-performing funds, even though they both lost money in 2008.The Forester Value Fund was down 0.82% for the year, thanks to investments in stocks that typically do well during recessions, such as Kraft Foods Inc., Johnson & Johnson and H.J. Heinz Co. The average decline for the year in the value fund category was 38%, according to Morningstar Inc.Ellison's FBR Small Cap Financial Fund was second among financial sector funds, losing just 10% of its value, compared to an average decline of 45% in its category.While Forester and Ellison may want to adjust their portfolios as market conditions improve, they are continuing to attract new clients and new assets for now. Forester said his fund's assets have grown fivefold in 2008 to $55 million."I'll probably be in some of the same stocks for the first six months or so of 2009," Forester told the Associated Press. "And then as I see things getting better, I'm going to shift out of the real defensive things, and get more constructive on the more cyclical stocks that can grow quite well as we come out of this period."Ellison's fund is invested primarily in low-risk small banks and in cash. He said he plans to keep it there until the economy starts to show broader signs of recovery."I think unaffordable mortgages are still going to chew on the economy for a while," he said.

A 38% drop in the Standard & Poor's 500 index last year seems almost rosy compared to the abysmal performance of three big mutual funds that all lost more than 60%.Legg Mason heavyweight manager Bill Miller - who once beat the S&P 15 years in a row - has gone from best to worst, with his Legg Mason Opportunity Trust fund down a staggering 65% for the year.According to Morningstar Inc., the second-worst performer was the Winslow Green Growth Fund, down 61%, followed by the Legg Mason Growth Trust fund, down 60%."[Miller] continued to try to position the fund for a recovery," Morningstar fund analyst Greg Carlson told The Wall Street Journal, adding that Miller kept holding on to stock in Amazon (down 45%), Expedia (down 74%) and Yahoo (down 48%) as well as Freddie Mac and American International Group Inc.Winslow manager Jack Robinson said the fund's losses were due to its concentrated portfolio and focus on green energy companies."We also made a couple of mistakes," Robinson said. "We stayed with some companies that had sound fundamentals but which had debt. We're going to be sticking with our investment philosophy for the long term."Morningstar's analysts are optimistic that Legg Mason's Growth fund, managed by Robert Hagstrom, is well positioned for an upswing in the markets, whenever that happens."Legg Mason Growth will soar again," Morningstar senior fund analyst Bridget Hughes. "We're confident that the fund will perform well in an upswing. In fact, since mid-November, it has gained more than 7.5%, putting it near the category's top."The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

Despite the rough economy in 2008, U.S. households continued to place their trust and their investments with mutual funds, according to a study by the Investment Company Institute."2008 marked the fifth consecutive year of growth in mutual fund-owning households," said Sarah Holden, ICI Senior Director of Retirement and Investor Research. "The survey finds about 4 million investors were added to mutual fund ownership ranks in 2008-up to 92 million from 88.2 million in 2007."Shareholder views of mutual funds continued to track stock market performance, with favorability declining from 77% in 2007 to 73% in 2008, and "more seasoned" investors tended to give mutual funds higher ratings than younger investors did.

Regulators at the Securities and Exchange Commission issued a report to Congress on Tuesday that supports maintaining mark-to-market rules, rejecting a push from the banking industry to suspend the rules.Critics of the rules say the regulations mandate write-downs and don't reflect the true value of some assets, particularly mortgage-linked assets that could increase in value in time.The SEC said suspending the rules would weaken transparency and ultimately hurt investors and the capital markets.

It started badly on the tail end of the subprime crisis that began in the fall of 2007 and managed to get worse when catastrophic third-quarter results poured in, sending many of the biggest financial services firms straight down the crapper.The question is, where do we go from here?Analysts say the next year is going to be tough for advisers."What's an adviser to do?" said Kenneth Kehrer, the director of consulting at Kehrer-Limra in Princeton, N.J. "How can he encourage clients not to cash out their holdings when all the adviser's advice is proving wrong?"Advisers "are still sticking to theories, the experience and wisdom of the profession, while clients are losing confidence in them," Kehrer said. "We're all waiting for a comeback, but in the meantime financial advisers just look foolish. The tenets of diversification and rebalancing are shaken."It's small consolation that this is a crisis of confidence for everyone. No one really knows what's going to happen from one minute to the next, and no one knows when the crisis will end. The current consensus is pointing to anywhere from the end of the first quarter to early 2010.And at the same time advisers are trying to calm clients, their business may be shifting as the biggest banks digest their acquisitions and smaller banks try to accommodate a growing client base.One thing for advisers to remember is that the needs of clients and prospects haven't changed just because the market has — they still need to retire and put their kids through college. Sure, the conversations are more difficult now that everyone's problems are magnified, but financial consultants must man up, said Heywood Sloane, managing director of the Bank Insurance and Securities Association. "Advisers can either do these people a service or they can run and hide," he said. "Those advisers who choose to help will be remembered when all this is over."In the meantime, advisers can add value to client conversations by explaining the problem as it evolves. For example, Sloane said, market volatility unseen since the Great Depression is driven partly by the fact that no one knows what anything is supposed to cost at the moment, and so every purchase is an emotional response that makes the markets unpredictable.Sloane said housing will eventually lead the country out of this recession. Current and anticipated foreclosures are forcing housing prices down, and eventually the cost of a house will get low enough that a prospective homeowner will buy."Until we get a net decline in population, there will always be an increase in demand for resources, so the housing market will stabilize at some point," Sloane said. "You can help clients understand their options by helping them gain knowledge."Chip Roame, a managing principal of Tiburon Advisors in Tiburon, Calif., said banks "will definitely hire more financial advisers."But advisers who were planning their own retirements have to drink the same poison as their clients. Retirement just isn't an option right now. Even independent advisers who sold their books to banks in order to retire and live off the proceeds are suffering. Now that their assets are reduced and clients might be a flight risk, their books hold less value.

The Securities and Exchange Commission has received an emergency court order to halt a suspected Ponzi scheme targeted to Haitian-American investors.

The Timothy Plan, a Christian mutual fund family that shuns video games, has published an extensive and descriptive list of video games that promote violence and sex.

The personal fortunes of the 1,000 wealthiest people in Britain have tumbled by more than 50% in 2008, according to the 2009 Sunday Times Rich List.

Global research firm Morningstar has acquired U.K.-based Tenfore Systems, a privately owned provider of market data feeds and technology, for $20.9 million.

A consortium comprised of New York investment firms J.C. Flowers & Co., Dune Capital Management and Paulson & Co. is set to acquire distressed IndyMac Bancorp, according to published reports.

Japanese mutual funds are headed for record declines this year as assets across the board have suffered losses from a combination of a global recession, plummeting interest rates and a surging yen.

The Securities and Exchange Commission may bring enforcement action against the Reserve Management Company and its managers for possible violations of federal securities laws.Reserve Management president Bruce Bent and his two sons Bruce Bent II and Arthur Bent III, who are senior executives at the firm, have said they will cooperate with an SEC investigation, but "expect to defend vigorously against the allegations."The Reserve's Primary Fund nearly created a panic in mid September when it announced that it "broke the buck," falling below the implied guarantee of $1 per share. Billions of dollars in assets flew out of other money market mutual funds in the following days, but money fund assets have since recovered at most shops, in some cases soaring.Since then, virtually all of Reserve's funds have frozen withdrawals and announced plans to liquidate.Investment firm Ameriprise Financial Inc. is suing the Reserve in federal court for allegedly telling some of its investors in advance that it was in danger of breaking the buck.A few weeks ago, Reserve admitted it gave inaccurate information to investors, saying the Primary fund actually broke the buck five hours earlier than initially reported.

It used to be that dividend-paying stocks got no respect, but after a year like 2008, they are back in their prime, BusinessWeek reports.

Standard & Poor's Friday downgraded 11 major U.S. and European financial institutions as they continue to face pressure from complex financial risks and the weakening economy.

UBS has distanced itself from responsibility for clients’ unspecified losses in one of its Luxembourg mutual funds that invested in Bernard Madoff’s funds, the Financial Times reports. The marketing and subscription documents for the $1.4 billion Luxalpha Sicav fund state that it is not UBS that is responsible for fund losses but U.S. broker/dealer Access Management.

Total assets of money market mutual funds dropped slightly during the week ending Dec. 17, falling $2.96 billion to settle at $3.775 trillion, according to the Investment Company Institute.This marks the first weekly decline in overall assets since late September. During their 11-week run, money fund assets increased by $321.2 billion, or 9.3%.Retail money market mutual fund assets rose by $1.57 billion to $1.284 trillion for the week. Of those, taxable fund assets rose $2.08 billion to $985.75 billion and tax-exempt assets fell $507 million to $297.91 billion.Institutional money market fund assets fell $4.53 billion to $2.491 trillion for the week. Among those funds, taxable assets fell $2.7 billion to $2.306 trillion and tax-exempt assets fell $1.83 billion to $184.7 billion.Money fund assets have increased $630.5 billion year-to-date, or 20%, for what could be their second-best increase ever. The best year was 2007, with a gain of $760 billion in new assets. Institutional assets increased $508.0 billion, or 25.6%, and retail assets have increased $122.5 billion, or 10.5%.The seven-day average yield fell from 0.94% to 0.88%, while the 30-day average yield fell from 1.09% to 1.01%, according to iMoneyNet Inc.'s Money Fund Report.The seven-day compound yield also dropped, falling from 0.95% to 0.89% for the week, and the 30-day compound yield fell from 1.09% to 1.02%.The average maturity of money fund portfolios was 50 days, up from 48.

This was a tough year to launch any new product, and exchange-traded funds were no exception.While ETFs were anticipated by many to overtake mutual funds due to their ability to trade like stocks, the crippling global economic crisis of 2008 put a halt to that growth for now, forcing dozens of new ETFs to close and hundreds more to delay launching until conditions improve.Approximately 70% of the 730 U.S.-based ETFs opened in the last three years, but that pace has slowed significantly this past fall. Many ETFs based on the healthcare industry are liquidating, such as those of New York ETF firm XShares Advisors, and many exchange-traded products based on commodities like oil have been hammered by extremely volatile price swings.Actively managed ETFs also failed to garner widespread support in 2008.

President-elect Barack Obama has named regulatory veteran Mary Schapiro to lead the Securities and Exchange Commission after he takes office next month.

Fidelity Investments has been taking advantage of new changes to 403(b) regulations to expand its presence in the higher education retirement business, adding more than 50 new plans this year.

The U.S. could see a 70% decline in the number of mutual fund families over the next five years unless regulations are changed to put them on a more equal footing with hedge funds, according to a new report by the Boston research firm Celent, titled: “The Global Credit Crisis: Implications for North American Wealth Management.”