I've never been much of a cheerleader. But I've recently come across a couple of statistics that have made me proud to be a mutual fund shareholder. And we don't get that many opportunities these days to crow -- after all, we're the ones giving our vote of confidence to portfolio managers, 90% of whom can't even beat the
But a recent survey of investors, published jointly by the trade groups representing stockbrokers (the
Securities Industry Association
) and mutual funds (the
Investment Company Institute
), paints a fairly flattering picture of fund investors.
And a different look at some of the relative performance figures of stocks vs. funds does even more to convince me that mutual fund shareholders aren't the peons of mediocrity that stock-trading cowboys would have us believe.
Consider some findings from the SIA-ICI survey of 4,842 households, taken in January and February and published last month:
- Fund shareholders are unflappable. Some 65% said they didn't make a
single trade in 1998. (Automatic contributions and dividend reinvestment didn't count.) Now, plenty of folks were trading in 1998 -- the indices tumbled in the third quarter. Sellers tripped over themselves unloading stocks as emerging markets collapsed overseas and a U.S. hedge fund floundered here. Ask yourself: Who's better off? The investor who sold during the tumult, paid taxes and transaction costs, and then had to figure out when the market hit bottom? Or the investor who ignored the headlines, focused on long-term goals and watched the indices return to record highs?
Fund shareholders are well diversified. Nearly half (48%) said their investments were spread among four or more stock funds; only 19% bet the farm on a single fund. Fund holders may not experience the thrill of a high-tech highflier in the visceral and proprietary way that an investor holding the stock directly might. Nor will a fund holder's portfolio be decimated when said highflier crashes and burns. Remember, for every
Microsoft (MSFT) - Get Report (up 60% in the past 12 months) there's an
Iomega (IOM) (down 45%); for every
Lucent (LU) (up 74%), a
PetsMart (PETM) (down 50%).
Half of fund holders said their risk tolerance is "average;" a mere 8% said they're "willing to take substantial risk for substantial gain." This should come as no surprise, given points one and two above. By contrast, 25% of stock owners who trade via the Internet in 1998 said they'll take on substantial risk for substantial gain; 51% said they'll tolerate above-average risk
Fund shareholders have a global outlook. More than 60% hold shares of international or global funds. Only 15% of stock investors hold overseas securities. Being well traveled, investment-wise, has paid off. For 1999 through the third quarter, the S&P 500 was up 5.4%. But the
Morgan Stanley EAFE index, which tracks Europe, Asia and the Far East, rose 7.4% and the
Morgan Stanley Emerging Markets index logged a 33.3% gain.
Now here's a little-discussed money stat that makes mutual fund holders look really smart. It comes from
Don Phillips, who gave the keynote address at the
Dollars and Sense Conference last month:
Of the more than 7,500 stocks Morningstar tracks, 1,865 lost more than 20% in the third quarter, during one of the greatest bull markets in history. By contrast, of the more than 10,000 mutual funds Morningstar tracks, exactly nine -- and that includes teeny-tiny funds as well as multiple share classes of the same fund -- lost 20% or more. Your chances of picking a stock that lost 20% were one in four, said Phillips, while your chances of picking a mutual fund with a 20% loss were closer to one in 1,000.
Phillips also mentioned that Morningstar tracks more than 100 different stock indices. For the latest five-year period, 95 of them trail the S&P 500. The fact that 90% of fund managers have trailed the S&P has more to do with the incredible concentration of the market's gains in just a few stocks (can anyone say "Nifty Fifty?") than with long-term investment management skills. Fund managers weren't geniuses from 1977 to 1984, when they ran circles around the S&P 500, said Phillips. And they're not dunces now.
Neither are fund shareholders. One final nugget from the SIA-ICI investor survey: Fund holders don't seem to have the endless egos that a lot of chat-room know-it-alls exhibit. More than half (55%) described their investments skills as "basic"; 25% described them as "limited"; and just 18% said their knowledge of stock funds is "comprehensive."
We'll tack on "modest" as another of the virtues of mutual fund holders.
Next column: fund holders as thrifty, clean and reverent.
Anne Kates Smith is a senior editor at U.S. News & World Report in Washington. At time of publication, Smith had no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds.