• Editor's Note
  • Editor's Note

    by Charles Rotblut, CFA

    I will admit that putting a bear’s claw marks on the front cover may seem like an odd choice when talking about the five-year performance of mutual funds. Since the current bull market started in March 2009, the average large-cap fund has realized a 108.2% return. The average small-cap fund has fared even better, rising 138.1%.

    What these impressive gains exclude, however, is the still painful plunge that occurred throughout 2008 and early 2009. When the analysis is widened to encompass the full five-year period of 2008 through 2012, the effects of the bear market are evident. During that time span, the average large-cap fund and the average small-cap fund realized annualized returns of just 1.1% and 3.4%, respectively. These lackluster returns are a reminder of just how severe the last bear market was. Five years later, the bear’s claws can still be seen.

    Bond funds, of course, have prospered over the same time frame. The problem facing investors going forward is that interest rates are at historically low levels. Though yields could stay at low levels for an extended period of time, the easy money has been made in bonds and bond funds.

    Thus, as you look at the list of the top-performing funds over the past five years, which starts here, keep in mind how the events of the last five years have impacted returns. The bear’s claw marks remain, but the scratch marks are healing. The consistency of performance and how the funds have performed on an annual basis should be the key areas of your focus.

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    Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/CharlesRAAII.


    H Dannawi from GA posted over 3 years ago:

    iam amember with aaii for many tears.retired in 2005 and yet unable to form aconservative an asset allocation.many retiree they dont have million or two millions.what about those retiree that are not fortunate that their portfolio is not big enough.why the journal does recommend they are the expert to help the retiree to give them an idea where to invest in bonds or balanced funds.thanks

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