RSSBattered Investors Ditching Mutual Funds
By Tom Lydon | November 26, 2008 | 3:48 PM | 0 Comments
Mutual funds are having a bit of a PR crisis this year, as the market collapse has left investors beaten, battered and bruised. The downturn has seen funds lose at times 40% and more of their value.
But despite that, some mutual funds could potentially be dishing out capital gains distributions, kicking investors while they're down.
After taking massive hits to their portfolios all year, investors who are expected to pay capital gains on such drastic losses could find them a very bitter pill to swallow. This could only further damage the trust that investors already are losing in fund companies.
Some of the largest mutual funds out there are seeing big capital gains estimates, despite some having negative performance residing in double digits:
- American Funds EuroPacific (CEUCX): $71.2 billion assets; down 46.9% year-to-date; capital gains distribution estimate of 4-6% of the share price
- American Funds Washington Mutual (CWMCX): $52.9 billion assets; down 37.2% year-to-date; capital gains distribution estimate of 1-3% of the share price
- Fidelity Contrafund (FCNTX): $52.9 billion assets; down 39.9% year-to-date; capital gains distribution estimate of 0.16 cents per share
- Vanguard PRIMECAP (VPMCX): $23.9 billion assets; down 35.8% year-to-date; capital gains distribution estimate of $3.64 per share
On top of that, mutual fund fees could be rising in 2009.
Analysts are slating stock funds for an average increase in expense ratios of .05% to .1%, while bond funds could go up .01% to .02%. Assets have fallen this year, further putting on the pressure, and some funds that operate break points below that level could increase management fees as well, reports Sue Asci for Investment News.
Fixed costs have also taken a good chunk out on expense ratios, which include trading, accounting, legal, audit and other service fees. Investors are sometimes not even aware of the rising costs that funds may already be incurring as a result of fee increases.
Fee increases are expected to come first from small fund firms that are struggling with assets while the larger fund companies have the financial stability to not raise fees as quickly.
It comes as little surprise to hear that mutual fund assets have tanked 21% in the last five months as investors headed for the exits. Lipper Inc., a research firm, found that as of Oct. 31, every type of mutual fund had $9.5 trillion in assets down from the $12 trillion it enjoyed at the end of May.
The industry's asset levels were last below $10 trillion at the end of 2006, but this time there doesn't appear to be much incentive for those investors to come back. Many of them are already heading to ETFs, and we predict that this trend is going to continue when the market rebounds.
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