Tag Archives: first-look

Lipper Closed-End Fund Summary: July 2015

By Tom Roseen While for the third consecutive month equity CEFs suffered negative NAV-based returns (-0.72% on average for July) and market-based returns (-1.96%), for the first month in three fixed income CEFs were able to claw their way into positive territory, returning 0.45% on a NAV basis and 0.82% on a market basis While the NASDAQ Composite managed to break into record territory in mid-July after a strong tech rally following Google’s surprising second quarter result, as in June advances to new highs were generally just at the margin. Despite signs of improvement in Greece’s debt crisis and on China’s stock market meltdown, investors turned their attention to second quarter earnings reports and began to evaluate the possible impacts slowing growth from China and the global economy will have on market valuations. The markets remained fairly volatile during July. At the beginning of the month rate-hike worries declined slightly after an inline jobs report and soft wage growth were thought to give policy makers an excuse to postpone rate hikes until December. The Labor Department reported that the U.S. economy had added 233,000 jobs for June. And while the unemployment rate declined to 5.3%, most of it was due to people leaving the labor force. With the Chinese market taking back some of its losses and the Greek debt saga appearing to be closer to a resolution, European stocks rallied mid-month. However, later in the month disappointing earnings results from the likes of Apple (NASDAQ: AAPL ), Caterpillar (NYSE: CAT ), and Exxon (NYSE: XOM ) and commodities’ continuing their freefall placed a pall over the markets. Concerns over slowing global growth and the Shanghai Composite’s recent meltdown weighed on emerging markets, sending Lipper’s world equity CEFs macro-group (-1.52%) to the bottom of the equity CEFs universe for the month. While plummeting commodity prices weren’t much kinder to domestic equity funds (-0.80%), investors’ search for yield helped catapult mixed-asset CEFs (+0.77%) to the top of the charts for July. With China suffering its worst monthly market decline in six years, crude oil prices closing at a four-month low, and gold futures posting their worst monthly performance in two years, investors experienced bouts of panic and sought safe-haven plays intermittently throughout the month. At maturities greater than two years Treasury yields declined, with the ten-year yield declining 15 bps to 2.20% by month-end. For the first month in four all of Lipper’s municipal bond CEFs classifications (+1.10%) witnessed plus-side returns for July. However, domestic taxable bond CEFs (-0.13%) and world bond CEFs (-0.98%) were pulled down by investors’ risk-off mentality. For July the median discount of all CEFs narrowed 2 bps to 10.50%-worse than the 12-month moving average discount (9.13%). Equity CEFs’ median discount widened 41 bps to 11.15%, while fixed income CEFs’ median discount narrowed 58 bps to 9.86%. For the month 46% of all funds’ discounts or premiums improved, while 51% worsened. To read the complete Month in Closed-End Funds: July 2015 Fund Market Insight Report, which includes the month’s closed-end fund corporate events, please click here .

Large Cap Funds: Active Versus Passive

By Todd Rosenbluth In the first half of 2015, investors pulled $22 billion out of large-cap core U.S. equity mutual funds, but added $19 billion to S&P 500® Index-linked mutual funds. While this confirms that active management is losing share to passive, we think there are still strong active large-cap mutual funds to choose from. According to S&P Dow Jones Indices, just 23% of all large-cap core active funds outperformed the S&P 500 Index in the three-year period ended 2014 . (It is not possible to invest directly in an index, and index returns do not reflect expenses an investor would pay). On an equal-weighted basis, the average large-cap fund’s 18.6% three-year annualized return lagged the S&P 500 index by approximately 180 basis points. These performance challenges are not rare, as just twice in the past ten calendar years more than 50% of actively managed funds have beaten the “500”. A separate S&P Dow Jones study revealed how hard it is for those large-cap funds that outperformed to continue to do so. Indeed, just 4.5% of the outperformers in the 12-month period ended March 2011 maintained their top-half ranking in each of the four subsequent 12-month periods. The S&P Dow Jones Indices studies highlight that you would be better off with an index-based large-cap offering than choosing an average active fund. In fact there are many below-average performers. For example, the Davis New York Venture Fund (MUTF: NYVTX ) is among the biggest large-cap core funds, yet it lagged peers in four of the five last five calendar years. Indeed, NYVTX and its sister share classes had $2.8 billion of outflows in the first half of 2015. Of course, nobody aims to invest in a below-average mutual fund. S&P Capital IQ’s mutual fund rankings incorporate holdings-based analysis as well as a review of a fund’s relative track record and cost factors. We find 30 large-cap funds meet our criteria, though some of multiple share classes of the same portfolio. The list of funds included the American Century Equity Growth Fund (MUTF: BEQGX ), the Fidelity Fund (MUTF: FFIDX ), the T. Rowe Price Growth & Income Fund (MUTF: PRGIX ), and the Vanguard Growth & Income Fund (VNQPX). S&P Capital IQ hosted a client webinar on active versus passive strategies on Tuesday, August 4, but you can listen to a replay http://t.co/4KDPwLW9Aj . Reports on the aforementioned mutual funds and ETFs can be found on MarketScope Advisor. Disclosure: © S&P Dow Jones Indices LLC 2015. Indexology® [link “Indexology®” to http://www.indexologyblog.com/] is a trademark of S&P Dow Jones Indices LLC (SPDJI). S&P® is a trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a trademark of Dow Jones Trademark Holdings LLC, and those marks have been licensed to S&P DJI. This material is reproduced with the prior written consent of S&P DJI. For more information on S&P DJI and to see our full disclaimer, visit www.spdji.com/terms-of-use [make sure this appears hyperlinked].