"Of Mutual Interest"-Christine Benz, Director of Mutual Fund Analysis For Morning Star
Tuesday, April 01, 2008PAUL KANGAS: In tonight's "Of Mutual Interest" segment, we're taking a look back to see what happened to mutual funds in the first quarter. As usual, helping us out is Christine Benz, director of mutual fund analysis for Morningstar. Christine, welcome back to NIGHTLY BUSINESS REPORT.
CHRISTINE BENZ, DIR., MUTUAL FUND ANALYSIS, MORNINGSTAR: Hi, Paul. It's great to be here.
KANGAS: As everyone knows, it wasn't a great quarter for the stock market. So were there any mutual fund categories that came out ahead?
BENZ: Generally it paid to be defensive. So one category that did very well is the category of bear funds and these are funds that take short positions in stock. Some high-quality bond funds also did well, as did the precious metals category. So generally defensive was a good place to be during a tough quarter.
KANGAS: Let's see which individual funds with assets of more than $50 million did the best in the quarter. It's no great surprise that they're all bear market funds. These funds did have gains that far exceeded the average for the group, ranging from almost 20 percent to just about 32 percent. How did they manage that Christine?
BENZ: Well, Paul, these are funds that are bearish, meaning that they typically take short positions in stocks and they also use leverage that essentially magnifies their gains or losses. During a down quarter, it magnified their gains.
KANGAS: They did well, the ones we're looking at. A let's move on to the fund with the best gain over the past year.
BENZ: Right. This is a Latin America fund. Again, a fund that attracts the market index but uses leverage, essentially borrowed money to magnify its gains. Here it's mirroring very strong returns from Latin America. This is a fund that has fallen back a little bit for the year to date, but did have a terrific year in 2007.
KANGAS: Going back three years, it's much of the same story with T. Rowe Price Latin America fund (PRLAX) taking the honors, right?
BENZ: Right, a perennial winner. This fund also has a very good five-year track record. For investors who bought this fund five years ago, they're sitting on an average gain of 50 percent per year. So for those of you who bought it, enjoy your retirement. It's a really good pick.
KANGAS: Now looking at the performance of the largest funds in the first quarter, we can see that bigger was not necessarily better with all ending well in the red, except for one bond fund in the group, the Pimco Total Return Fund (PTTAX).
BENZ: Right. Pimco came into this year very well positioned for an ongoing tough market for credit. It was positioned somewhat defensively and has reaped the rewards. The stock funds, as you said, Paul, have not performed well with Vanguard 500 Index (VFINX) being particularly hard hit due to its holdings in financials and technology.
KANGAS: Right. Now, Christine, in market like the one of the past few months, the judgment of the fund manager is put to the test. So did managed funds do better than the benchmarks, the market indices?
BENZ: Surprisingly, they didn't do all that well Paul or perhaps not surprisingly, depending on your perspective on active management. What we found was that something like 38 percent of large cap funds actually managed to beat the S&P 500 Index during the quarter. So that's not particularly great rate of out performance, in my opinion.
KANGAS: Christine, very interesting and as always thank you for your insights.
BENZ: Nice to be here, Paul. Thank you.
KANGAS: My guest, Christine Benz, director of mutual fund analysis at Morningstar.
