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 Q2 of 2008, 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 Q3 of 2008 and for the 18 month period ending June 30, 2008.  Performance numbers for the 18 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 foreign equity and municipal bond categories.

Over the 18 month period, foreign equity funds and municipal bond funds in the AP universe outperformed their benchmarks.  Foreign equity funds beat their benchmark by a significant margin (483 basis points), delivering an average performance of -12.22%, compared to -17.05% for their benchmark, the EFA exchange traded fund (ETF).  Municipal bond funds beat their benchmark (the TFI ETF) by 8 basis points (-0.66% versus -0.74%). 

Of the top 25 foreign equity funds, 19 outperformed their benchmark over this 18 month period, with two funds (ANWPX, and FICDX) outperforming the benchmark in all six quarters.  Another three funds beat their benchmark in five of the six quarters. 

Of the top 25 US municipal bond funds, 16 outperformed their benchmark over this 18 month period, although no fund outperformed its benchmark in all six quarters.  One fund (JNYIX) beat its benchmark in five of the six quarters.

Detailed findings of the current study are as follows:

• US Equities:  For Q3 of 2008, the top 25 funds underperformed the S&P 500 by 279 basis points (-11.66% versus -8.87%), with only 2 of 25 funds beating the benchmark.  For the 18 month period, these 25 funds underperformed the S&P 500 by 86 basis points (-12.07% versus -11.21%), with 12 of 25 funds beating the benchmark.  No funds outperformed in all six quarters.  The most popular fund, the Growth of America Fund (AGTHX), and the Victory Diversified Stock Fund (SRVEX) were the only funds to outperform the index in five of the six quarters.  Of the 25 funds, 11 outperformed their secondary, style box-specific benchmarks for the 18 month period.

• Foreign Equities:  For Q3 of 2008, 13 of the 25 funds outperformed the benchmark, and average performance across all 25 funds was 96 basis points above the benchmark (-19.55% versus -20.51%).  As we note above, for the 18 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 funds underperformed the EEM exchange traded fund, a more appropriate benchmark.

• Taxable Bonds:  For Q3 of 2008, 4 of 25 funds outperformed the Lehman AGG benchmark, and the 25 funds on average outperformed the AGG by 386 basis points (-4.47% versus -.61%).  For the 18 month period, performance across the 25 funds has been disappointing, with only 5 of 25 funds outperforming the AGG.  The 25 funds underperformed the AGG by 127 basis points over the 18 months (-1.88% versus -0.61%)

• Municipal Bond Funds:  For Q3 of 2008, 16 of 25 municipal 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 outperformed the TFI by 77 basis points (-2.56% versus 3.33%).  For the 18 month period, 16 of 25 funds outperformed the benchmark, and overall the 25 funds outperformed the benchmark by 8 basis points (-0.66% versus -0.74%).

The results for Q3 of 2008 are summarized below:

The results for the prior 18 months (annualized) are summarized below:

Background and Methodology

The Advisor Perspectives universe tracks the investments of high- and ultra-high net worth investors whose assets are managed by Registered Investment Advisors.  The size of the universe is approximately $50 billion and the average account size is approximately $900,000.  However, 94% of the assets are concentrated in a group of accounts with an average account size of approximately $4 million, so data from the universe is biased by this demographic, and therefore represents the investment decisions of ultra-high net worth investors.

The most popular mutual funds are determined based on the AUM (assets under management) for each fund within the Advisor Perspectives universe.  The inception of the Advisor Perspectives service was in Q1 of 2007.  The first complete calendar quarter of data was Q2 of 2007.

The funds used in this study were the most popular funds as of March 31, 2007.  Only actively managed funds were considered; index funds, enhanced index funds, and ETFs were not included in this study.

To calculate the AUM of each fund, assets are consolidated across all share classes held in the Advisor Perspectives universe.  For this study, performance data was obtained for the share class most appropriate for advisors (either a load-waived share class or an institutional share class).

Performance data and style-box classifications were obtained from Morningstar.
Detailed data is presented in the four tables in the PDF file.

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