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Tuesday, December 06, 2011

Many Fund Firms Now Underperform Their Own Funds

News summary by MFWire's editors

Despite the old adage about mutual fund firms doing better than their customers, it turns out that most firm's funds are now beating their stocks. That's the conclusion of the most recent Morningstar "Fund Spy" column, by Russ Kinnel.

Morningstar's analysts examined 12 publicly-traded fund firms over the past decade, and found that, for eight of those firms, their average and asset-weighted 10-year mutual fund returns beat out the 10-year return on their own stock.

Those firms were: AllianceBernstein [profile] (5.10 percent asset-weighted fund returns, versus -1.99 percent return on its shares), Federated [profile] (4.85 percent vs. 1.46 percent), Gabelli [profile] (6.09 percent vs. 4.08 percent), Invesco [profile] (4.74 percent vs. 0.03 percent), Janus [profile] (5.10 percent vs. -9.91 percent), Legg Mason [profile] (3.62 percent vs. 1.36 percent), SEI [profile] (4.74 percent vs. 1.29 percent) and Waddell & Reed [profile] (5.54 percent vs. 3.01 percent).

On the other hand, BlackRock [profile] (6.14 percent asset-weighted fund returns, vs. 15.3 percent returns on its shares), Eaton Vance [profile] (4.75 percent vs. 8.17 percent), Franklin Templeton [profile] (6.33 percent vs. 13.86 percent) and T. Rowe Price [profile] (6.8 percent vs. 15.72 percent) all earned better returns on their own stock than on their funds, overall.

Morningstar isn't surprised by these results, noting that the firms with the best fund performance (BlackRock, Franklin and T. Rowe) also had the best returns on their own shares, because long-term better performance leads to higher inflows and thus higher asset-based fees. And the fund ratings specialist notes that fund firms' shares also reflect the broader market to an exaggerated extent.

"Asset managers' shares naturally work as something of a leveraged play on the stock market," Kinnel wrote.

So, when the market is as volatile as it has been lately, asset managers' stocks may take more of a beating than their funds. 

Edited by: Neil Anderson, Managing Editor


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