Holy Smokes! These Funds Got Barbecued
Five funds that forgot to rally.
Five funds that forgot to rally.
The stock market's spring rally has floated many boats. But a few continue to take on water. Let's take a look at a few with the nastiest losses for the year to date.
ProFunds UltraShort Latin America (UFPIX),negative63%
Leverage and shorts are lots of fun until someone gets hurt. ProFunds' Web site says that "Inverse and UltraSector funds may help you battle a weak market," but this shows that they can also help you battle a strong market. This Fund Analyst Pan aims to provide 200% of the inverse of the returns of the Bank of New York Latin America 35 ADR Index before fees and expenses. I can't decide what's worse: The losses that funds like this suffer when the index they track rallies as it has this year or the losses when the index falls and you expect a gain but don't get it thanks to the magic of leverage. Last year when Latin American stocks lost about half their value, this fund lost 24%. For more on the workings of leverage, see Paul Justice's article.
Markman Core Growth ,negative42%
Ouch! How does a large-growth fund lose 42% when the typical fund is up 6%? It's hard to know for sure given this fund's 1,300% turnover, but I did spy Direxion Daily Large Cap Bear 3X shares among its top 20 holdings, so leverage strikes again. The fund's remarkably bad bets this year have sunk its long-term performance: It's lost an average of 8% annually for the past five years and 7% for the trailing 10 years. You may recall that Markman lost two bets with Vanguard founder Jack Bogle in which Markman bet that his funds would beat Vanguard 500 (VFINX). Markman lost the first one the previous decade and quickly lost the second when terrible performance led him to roll the funds in the bet into another newer fund without as long and bad a track record. I called the firm's 800 number to confirm its returns, but the person who answered the phone said that she didn't know. That's another first for this fund.
Vanguard Extended Duration Treasury Index Institutional (VEDTX), negative 33%
The story here is right there in the name. Duration is a good measure of interest-rate risk. Last year Treasury bonds were so popular as a flight to safety that their yields became superlow. It also gave this fund a whopping 55.5% gain in 2008. A long bond with low yield has a huge duration and therefore a huge amount of interest-rate risk. When investors got done panicking, they realized Treasuries had terrible yields and went elsewhere. Hence, the loss. For anyone who thought Treasuries were risk-free, this is Exhibit A.
Bryce Capital Value , negative 20%
This fund doesn't have the drama of the others. In many ways it looks normal: It's fully invested in equities, it has a turnover rate of 70%, and it leans toward mid-growth. Yet the fund has lost much more than other mid-growth funds. The portfolio is quirky with big consumer services and energy weightings, but it's not crazy. Still, it looks like the recession and drop in oil prices hit it right between the eyes. Comstock Resources and Hot Topic (did South Park doom it?) are both down more than 20%. In addition, they have largely avoided health and tech stocks--the strongest spots in the market this year. The fund had outperformed in the prior four years, so this year's drop must have come as a shock.
Franklin Real Estate (FREEX), negative 17%
Real estate funds have rebounded of late, but most are still in the red. This fund has some of the hardest-hit names such as Public Storage (PSA) and Kimco Realty (KIM), which manages shopping centers. As a result, the fund is doing much worse than most of its peers. I sympathize with managers Jack Foster and David Levy, who came on board in February 2008--talk about brutal timing to be given a real estate fund. By the way, if you think this would have been a great year to bet against REITs, consider that Profunds Short Real Estate (SRPIX) is down even more (negative 21%).
Giving on Memorial Day
Although many of us barbecue on Memorial Day, it's worth remembering that the purpose of the day is to honor those who have given their lives to their country in combat. I hope you'll consider some of the charitable organizations that support families of soldiers who have lost their lives.
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