The Abysmal Failure of Dedicated Short Bias Mutual Funds
Lipper’s mutual fund data for the quarter ending June 30, 2010 was just released and one glaring item was the horrendous performance of those funds who were supposed to do best when the markets were doing badly.
The past 12 months were pretty good times for being long, while not so good for the trailing five years and decade. Here are Lipper’s numbers for various mutual fund categories…
|
Fund Type |
Quarter 6/30/10 |
One Year |
Five Years* |
Ten Years* |
|
S & P 500 Index |
(11.73%) |
13.83% |
(1.29%) |
(2.05%) |
|
Large-Cap Core |
(12.26%) |
12.10% |
(1.10%) |
(1.19%) |
|
Large-Cap Growth |
(12.29%) |
11.30% |
(0.53%) |
(4.08%) |
|
Large-Cap Value |
(12.22%) |
12.88% |
(1.87%) |
1.80% |
|
Mid-Cap Core |
(9.91%) |
21.64% |
0.58% |
2.34% |
|
Mid-Cap Growth |
(9.59%) |
20.72% |
1.07% |
(1.00%) |
|
Mid-Cap Value |
(10.21%) |
23.45% |
0.36% |
6.48% |
|
Small-Cap Core |
(9.38%) |
21.60% |
0.44% |
5.21% |
|
Small-Cap Growth |
(9.20%) |
19.13% |
0.23% |
(0.81%) |
|
Small-Cap Value |
(9.81%) |
25.39% |
0.32% |
7.57% |
|
Average of Above: |
(10.66%) |
18.21% |
(0.18%) |
1.43% |
|
|
|
|
|
|
|
Dedicated Short Bias |
9.92% |
(29.13%) |
(8.13%) |
(6.00%) |
|
* 5 and 10 –year results are annualized returns |
||||
While the Short Biased funds did gain in the June quarter they did not go up as much as the typical long equity funds went down. In the trailing 12 months the shorts lost an average of 29.13% versus just an average gain of 18.21% for funds who were long.
In the five years ended June 30, 2010 the short bias funds showed an average loss of over 8% even as typical mutual funds went down slightly on average. Similarly, in the past decade the short bias funds proved to be losers of 6% per year in a period when the average long equity fund earned only about 1.4% annually.
Clearly, managers of short bias mutual funds are not adding value to anyone who seeks either a hedge against long holdings or a pure play on a market downturn. This is yet another example of Wall Street’s ability to generate big fees for itself while failing to provide much benefit to its customers.
Dr. Paul Price
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