| Data from the Advisor Perspectives (AP) Universe shows the performance of mutual fund selections by advisors who manage assets for HNW and UHNW clients. This study shows the performance of funds for the third quarter of 2007, based on holdings in the AP Universe as of June 30, 2007, and updates a previous study showing data for the second quarter (Part 1 and Part 2).
Overall, an investor with a portfolio that replicated the top 25 funds in the AP Universe would have done very well in Q3 (a return of 3.06%, versus 2.01% for the S&P and 2.09% for the EFA). Among specific groups of actively managed funds, non-US funds and taxable bond funds did exceptionally well, while US equity funds lagged, as did municipal bond funds.
More detailed findings from this study include the following:
- A broadly diversified portfolio, consisting of the top 25 taxable mutual funds and ETFs, would have earned a return of 3.06% for Q3 2007. Holdings in this portfolio were weighted proportionally to the funds’ assets under management in the AP Universe. This compares with returns of 2.01% for the S&P (based on the SPY ETF) and 2.09% for the MSCI EFA (based on the EFA ETF). Such a portfolio would have had 46.6% of its assets invested in non-US funds and ETFs. The strong performance of this portfolio was aided by large holdings in the American Europacific Growth Fund (AEGPX), which returned 5.23%, and the PIMCO Total Return Fund (PTRAX), which returned 4.52%, as well as by holdings in a number of other funds that did exceptionally well during the quarter. Of the 25 funds in the portfolio, 20 exhibited positive performance. (See Table 1)
- The top 25 actively managed US equity funds earned a weighted average return of 1.18% (versus 2.01% for the S&P based on the SPY ETF). These funds also failed to outperform their secondary benchmarks, returning -.83% versus these style box-specific indices. The top two funds in this group – Growth of America Fund (AGTHX) and Fidelity Contrafund (FCNTX) – did extremely well (returns of 4.43% and 7.16%), but many of the other funds in this group were adversely affected by the poor performance of value stocks during Q3. (See Table 2)
- The top 25 actively managed non-US funds earned a weighted average return of 3.12%, as compared to a return of 2.09% for the MSCI EFA (based on the EFA ETF). The strong performance in these funds was due partly to exposure to the Pacific and Emerging markets, such as the American Europacific Growth Funds (AEGPX), which returned 5.23%, and the Matthews Asian Growth and Income Fund (MACSX), which returned 5.67%. These funds under performed their secondary indices by .79%. (See Table 3)
- The top 25 actively managed US taxable bond funds returned 2.98%, versus a return of 2.71% for the Lehman Aggregate Bond Index (based on the AGG ETF). These funds under performed their secondary indices by 0.35%. (See Table 4)
- The top 25 actively managed municipal bond funds fared the poorest, with a weighted average return of -0.18%, compared to the Lehman Municipal Bond index of 2.38%. The poor performance of this group of funds was largely attributable to poor returns by two of the three top three funds, both of which are high yield funds (GHYAX and NHMAX). (See Table 5)
When viewed in conjunction with the earlier studies that looked at data from Q2 of 2007, the most significant observation is that advisors are demonstrating consistent skill in picking actively managed funds in the non-US markets. For Q2 of 2007, foreign equity funds outperformed their primary index (the EFA) by 1.69%; in Q3 they outperformed the EFA by 1.93%. Consistency of returns was also evident; there were 8 funds that outperformed the EFA in Q2 and were also among the top 25 funds in Q3, and 6 of these 8 again outperformed the EFA in Q3.
Performance data was obtained from Morningstar.
The tables showing the detailed data are available in the accompanying PDF.
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