Forget about beating the
. This year, stock mutual funds can't even beat long-term government bonds.
The average stock mutual fund this year has returned only 9.3% through last Thursday, according to
That trails the return of the long-term government bond, which is posting a 15.3% year-to-date return, according to the
Merrill Lynch U.S. Treasury Current 30 Year Index
. Even Merrill's wider index of 10-plus-year Treasury bonds is beating the average stock fund, with a return of 11.6% year to date.
And it could get worse. This year's numbers fit onto a trend line that peaked in 1995 and has gone lower ever since. Barring any wild swings this week, stock funds will post their lowest returns in four years.
Bull market? What bull market?
Through the day before Christmas last year, stock funds were returning 13.6% for 1997. In 1996, they posted a 17.2% return through the second-to-last week of the year. And in 1995, the number was 23.4%. The last negative number was posted in 1994, when stock funds lost 2.8% through Christmas Eve.
The only bull market to be seen this year was in a few select stocks that led the indices, says William Dougherty, president of Boston mutual fund tracking firm
Kanon Bloch Carre
"You're hearing about the bull market because you see the S&P and the Dow" being up, says Dougherty, noting that those indices are dominated by large-cap stocks. "The broader market has done worse than that."
Dow Jones Industrial Average
is up 16.6% through Dec. 24, according to
, while the
showed a 26.6% rise for the year through Dec. 23. The
, which tracks the broader stock market, is up 20.2% during that period.
, an index of smaller stocks, has showed a negative return of 7.2% year to date. Couple that with the fact that global jitters led to a flight to security in U.S. Treasuries as the currencies of other countries collapsed in 1998, and you have a formula for the long bond returning more than your average stock fund.
"People were scurrying around the globe, trying to invest in U.S. Treasury securities as a safe haven," says Greg Hahn, head of institutional fixed income at
Conseco Capital Management
in Carmel, Ind. He also notes that the lowering of interest rates, in anticipation of a slowing U.S. economy which has not yet taken hold, has also helped the long bond.
But to be fair to those stock fund managers, their lot includes such sectors as emerging markets and small caps, which have both gone through some harsh downturns this year. And as for fixed-income mutual funds, the average domestic long-term fixed income fund has only returned 4.9% year to date, according to Lipper, so they're not busting their benchmarks either - a fact that Hahn attributes to fixed-income managers investing in corporate securities early in the year, and thus missing out on the long bond's rally.
While stock funds are showing lower returns this year, investors should keep overall numbers in perspective, says Reuben Brewer, an analyst with the
Value Line Mutual Fund Survey
, a fund tracking group.
"If you're going to start complaining about a 9% -- almost 10% -- return, then you need to reassess your expectations," Brewer says, noting that, historically, the overall stock market has posted annual returns between 10% and 12%. "If you're expecting a 20% return from here until eternity, you're going to be disappointed a lot."
Well, we've all got to remain realistic. But what about the fact that equity managers are wearing some fixed-income egg on their faces?
" Falling interest rates will do that, won't they?" says Brewer. "But it really depends on what you're looking at, too. What are bonds going to return next year? Are they going to fall back to their historic range? Or are they going to underperform their historic range? Things tend to revert to the mean."
How true. But for a lot of equity managers out there, that's are some mean, hard numbers to swallow.