2008/2009 Investment Review & Preview : Mutual Fund Movements
Thursday, January 01, 2009JEFF YASTINE: As we noted, stocks were in a tailspin for much of the final months of 2008. So how did mutual funds fare? To help us find out, joining us from Chicago is Christine Benz, director of personal finance for Morningstar. Christine, happy New Year. Welcome back to NIGHTLY BUSINESS REPORT.
CHRISTINE BENZ, DIRECTOR, PERSONAL FINANCE, MORNINGSTAR: Hi, Jeff, happy New Year to you, too.
YASTINE: Let's begin by taking a look at which mutual fund categories did best. And as we'll see, the only categories to turn in really good returns for both the quarter and the full year were bond funds invested in long government issues and bear market funds. And is it significant that not a single stock fund category made the list here?
BENZ: Not only did they not make this list, Jeff, they didn't eke out positive returns for the year. So it was a terrible year and a terrible quarter overall for stock funds with nearly every stock fund category posting a double digit loss for the year.
YASTINE: Let's hope that one is not repeated for 2009. Now let's take a look at the top individual funds for the quarter with assets of more than $50 million. And we see a mixture of funds in the two top categories, lead by Vanguard Extended Duration Treasury Index (VEDTX) and Pimco Extended Duration (PEDIX). Isn't it unusual for government bond funds to rack up double digit gains? These are usually done for safety rather than capital gains.
BENZ: It is. Although when the Federal Reserve is in aggressive interest rate cutting mode as it has been for much of this year, this is when long Treasury bonds will really shine. But you're right, the gains typically aren't this large. The last time gains were quite this good was back in 1995 when the category returned something like 25 percent.
YASTINE: All right, we'll bring out the drum roll for this next one. The top performing fund for 2008 according to our preliminary results, the Rydex Dynamic Inverse NASDAQ 1002X Strategy H (RYVNX). That's quite a mouthful. What exactly does that fund invest in?
BENZ: This is a fund that shorts the NASDAQ and then also uses leverage, essentially borrowed money to magnify the NASDAQ's gains or losses. So when technology stocks are dropping like a stone as they were for most of 2008, this is a fund that will really thrive.
YASTINE: So double -- essentially double the loss of whatever the NASDAQ has?
BENZ: Right.
YASTINE: All right, let's look at over the past five years and there is a familiar name in the best performer spots, T. Rowe Price Latin America (PRLAX), an annualized return of about 16.7 percent. That include its results over the past year, when I understand it took a real beating.
BENZ: It did take a beating. It was a fund in a category, Latin America stocks that actually was holding up pretty well through the first half. But in the second half as it became clear that we would see a global recession, demand for commodities, which are really the bread and butter in Latin America, slackened dramatically and hit this fund very hard. So it suffered a steep sell-off.
YASTINE: And Christine, we have about 30 seconds on this. Finally, let's see how the largest funds did over the past year. Again preliminary results it seems that only Pimco Total Returns (PTTAX) managed to come out with a positive result.
BENZ: Right. And this is the sole bond fund on the list. Not only was it a bond fund, but it also was positioned very well. Bill Gross and the team anticipated that rates would be on the decline. And so they got the fund into more rate sensitive bonds. That was a good place to be in the second half of 2008 in particular.
YASTINE: Christine, thanks for your insights and happy New Year once again.
BENZ: Jeff, thank you and happy New Year to you too.
YASTINE: Our guest Christine Benz of Morningstar.
