Each quarter we look at the performance of the top 25 actively managed Most Popular Mutual Funds in the AP (Advisor Perspectives) universe in each of four asset classes.  This is the fifth such study: previous studies were done at the ends of Q1 of 2008, Q4 of 2007, Q3 of 2007, and Q2 of 2007.  This study analyzes the most popular funds as of March 31, 2007, and looks at performance during Q2 of 2008 and for the 15 month period ending June 30, 2008.  Performance numbers for the 15 month period have been annualized.

The goal of this study, as with prior studies, is to determine whether these actively managed funds outperform their appropriate benchmarks.   Our results so far show that advisors have selected funds which deliver alpha (by outperforming their benchmark) within the US equity and foreign equity categories.

Over the 15 month period, US equity funds and foreign equity funds in the AP universe outperformed their benchmarks.  Foreign equity funds beat their benchmark by a significant margin (592 basis points), delivering an average performance of 1.93%, compared to -3.99% for their benchmark, the EFA exchange traded fund.  US equity funds beat their benchmark (the SPY ETF) by 127 basis points (-5.14% versus -6.61%). 

Of the top 25 foreign equity funds, 18 outperformed their benchmark over this 15 month period, with three funds (HAINX, ANWPX, and FICDX) outperforming the benchmark in all five quarters.  Another six funds beat their benchmark in four of the five quarters. 

Of the top 25 US equity funds, 17 outperformed their benchmark over this 15 month period, with two funds (AGTHX and SRVEX) outperforming their benchmark in all five quarters.  Another eight funds beat their benchmark in four of the five quarters.

Among muni bond funds, 14 of 25 funds outperformed the Lehman Muni Bond Index for the 15 month period.  Taxable bond funds fared the worst, with only six funds outperforming the Lehman AGG over the 15 month period. 

Detailed findings of the current study are as follows:

• US Equities:  For Q2 of 2008, the top 25 funds outperformed the S&P 500 by 284 basis points (-0.37% versus -3.21%), with 18 of 25 funds beating the benchmark.  For the 15 month period, these 25 funds outperformed the S&P 500 by 127 basis points (-5.14 versus -6.61%), with 17 of 25 funds beating the benchmark.  The most popular fund, the Growth of America Fund (AGTHX), and the Vicotry Diversified Stock Fund (SRVEX) were the only funds to outperform the index in all five quarters.  The sixth most popular fund, the Fidelity Contrafund (FCNTX) had the best outperformance against the S&P 500 (beating the benchmark by 13.34%) over the 15 month period.  Of the 25 funds, 13 outperformed their secondary, style box-specific benchmarks for the 15 month period.
• Foreign Equities:  For Q2 of 2008, 17 of the 25 funds outperformed the benchmark, and average performance across all 25 funds was 89 basis points above the benchmark (-1.36% versus -2.27%).  As we note above, for the 15 month period, foreign equities consistently outperformed their benchmark, the EFA.  Three of the 25 funds (FEMKX, SSEMX, and HLEMX) are emerging market funds, and these also funds each outperformed the EEM exchange traded fund, a more appropriate benchmark.
• Taxable Bonds:  For Q2 of 2008, 18 of 25 funds outperformed the Lehman AGG benchmark, and the 25 funds on average outperformed the AGG by 73 basis points (-0.35% versus -1.08%).  Overall underperformance was influenced by the Schwab Yield Plus Fund (SWYPX), which returned -11.63% for the quarter and has been scrutinized widely in the media.  For the 15 month period, performance across the 25 funds has been disappointing, with only 6 of 25 funds outperforming the AGG.  The 25 funds underperformed the AGG by 367 basis points over the 15 months (1.43% versus 5.10%)
• Muni Bond Funds:  For Q2 of 2008, 7 of 25 muni bond funds outperformed the Lehman muni bond exchange traded fund TFI (we began using this ETF as the benchmark on 1/1/08).  The 25 funds underperformed the TFI by 17 basis points (0.12 versus 0.29%).  For the 15 month period, 14 of 25 funds outperformed the benchmark, but overall underperformed the benchmark by 64 basis points (1.29% versus 1.93%).

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