NEW YORK - Stock mutual funds have lagged the market an average of 2.3 percentage points a year during the past 15 years, according to a report by KPMG Peat Marwick L.L.P., New York.
In the past decade, the annual shortfall averaged 2.2 percentage points.
The past 12 months through June 30 were even worse, with the typical stock mutual fund earning 22% while the Standard & Poor's 500 Stock Index earned 25.7%.
Why do stock mutual funds consistently underperform the market? According to Neil Wolfson, managing director of KPMG's Investment Consulting Group, the key reasons are expenses, cash balances and turnover.
Expenses of the average stock fund are 1.3% per year, including legal and administrative costs and management fees. "Starting off the year 1.3% behind makes outperforming the index a difficult proposition," Mr. Wolfson wrote in the report.
Mutual fund managers also are forced to hold cash. The average stock fund has only 88% invested in stock at any give time to account for withdrawals or contributions awaiting investment.
Another reason for the underperformance is trading costs stemming from high turnover. The average stock fund's turnover is 72% a year.
A difference in stock market capitalizations also might play a role. The average stock in an equity mutual fund is only 61% of the average capitalization of the stocks in the index.
New pricing for Standish
BOSTON - The institutional mutual fund family of Standish, Ayer & Wood Inc. - the $4.4 billion Standish Investment Trust - will adopt new pricing under its master feeder structure, which was announced during the summer, said James Hollis, executive vice president of the family.
Effective Nov. 1, the funds - large-cap core equity, small-cap, fixed-income and global fixed-income - will carry a 25 basis-point record-keeping fee so they can be marketed more actively through 401(k) consulting firm alliances. In the future, the firm also might offer offshore versions of its funds.
Loomis starts high-yield fund
BOSTON - Loomis Sayles Mutual Funds launched a high-yield fund to be managed by Daniel J. Fuss, executive vice president and managing partner of the fixed-income group.Mr. Fuss also is the portfolio manager of the top-performing Loomis Sayles Bond fund.
The new no-load fund will aim to find securities with good potential for a credit upgrade.
New fund supermarket
CHARLOTTE, N.C. - Joining a slew of new fund supermarkets, NationsBanc Investments Inc. is launching its own - Fund Solutions.
Fund Solutions will include more than 300 no-load funds from more than 20 fund families including: Berger Funds; Crabbe Huson Group Inc.; Dreyfus Funds; Federated Funds; Hotchkis & Wiley Funds; INVESCO Funds; Janus Funds; Loomis, Sayles ; Montgomery Funds; Neuberger & Berman; Oakmark Funds; PBHG Funds; Robertson, Stephens Funds; Royce Funds; Scudder Funds; Strong Funds; and Warburg Pincus Funds. Twentieth Century Mutual Funds will be added in November.
The funds will be available with no transaction fee if they are held for more than 90 days.
Investors also will have access to Fund Planner, an educational questionnaire gauging risk tolerances and investment goals; Performance Review, a directory of funds arranged by investment category; and performance highlights, which measures top performers on a risk-adjusted basis and looks at adherence to style.
Research on the Web
OMAHA, Neb. - Accutrade Inc. is making its investment research available to clients free of charge through the company's World Wide Web site. The site, at www.accutrade.com, offers access to company and industry reports, stock alerts and price charts. It also includes mutual fund data including a regional review of bonds and a municipal bond guide.
Investors can identify funds that meet their investing criteria.
BT picks distributor
NEW YORK - Bankers Trust Global Investors, the mutual fund arm of Bankers Trust, selected Federated Investors, Pittsburgh, to distribute its $10 billion in proprietary mutual funds. Federated replaces Signature Financial Corp., Boston. Anne McMillen, managing director of Bankers Trust Global Investors, said she was attracted by the greater breadth of the Federated organization and its strong distribution capabilities.
PBHG Select Equity closes
WAYNE, Pa. - Pilgrim Baxter closed its PBHG Select Equity Fund to new investors Oct. 1 to control its growth, said Chairman and CEO Harold Baxter.
Select Equity, which invests in Pilgrim Baxter's top 25 to 30 stocks, has grown to $600 million in assets since it opened April 5, 1995.
Manager gets pickier
SADDLE BROOK, N.J. - Alan H. Wapnik, manager of the Lexington Growth and Income Fund, is being more selective in the market sectors he holds in the $186 million fund in light of recent market volatility.
Mr. Wapnik said he is being pickier about the selection of high-tech and economically sensitive stocks, focusing on holdings like Computer Associates International Inc. and Allied Signal Inc.
But his outlook for throughout 1997 is for conservative growth in the face of weak inflation and stable interest rates. The fund's top holdings now encompass energy, durable goods, health care and service industries.
The fund moved out of cyclical stocks at the end of last year to emphasize more diversified technology, financial services and consumer staple stocks.
3 PIMCO groups combine
NEWPORT BEACH, Calif. - Trustees of the three mutual fund groups affiliated with PIMCO Advisors L.P. have approved a plan to combine the fund groups into a single mutual fund complex, the PIMCO Funds, with more than $24 billion in assets under management.
The restructuring is subject to shareholder approvals and other conditions. It is expected to be effective in January. The newly combined PIMCO Funds would serve institutional and individual mutual fund shareholders with 38 mutual funds and with multiple classes of shares.
Included in the combination are the PIMCO Funds: Pacific Investment Management Series (PIMS Trust); Equity Advisors Series (PFEAS Trust); and PIMCO Advisors Funds (PAF Trust).
200 funds added
NEW YORK - American Express Financial Direct, the service launched five months ago to market financial products directly to investors, added 200 additional no-load mutual funds to its Fund Source program. The funds are available without a transaction fee.
The funds are from such families as Dreyfus Corp., Janus Capital Corp., Neuberger & Berman, Scudder Stevens & Clark Inc., Strong Funds, Twentieth Century Investors Inc. and Warburg Pincus & Co. Inc..They join existing funds from American Express Co. Inc. as well as Founders Funds Inc., INVESCO Funds Group Inc., Reserve Funds and Stein Roe & Farnham Inc.
Fund Source also will begin publishing Top Selections, in conjunction with Morningstar, which lists top funds offered in nine investment categories based on risk-adjusted returns.
2 launch new funds
Two independent fund families that don't often launch new funds have done so.
Wanger Asset Management, Chicago, has launched the Acorn USA Fund, a purely domestic small-cap fund. It is the family's third fund.
Acorn Fund, a small-cap stock fund that may invest up to a third of its assets abroad, is rated five stars - the highest rating - by Morningstar Inc., Chicago. Its Acorn International fund was the No. 2 international small company fund ranked by Lipper Analytical Services for the year ended June 30.
Enjoying a rebound in the performance of its two growth funds, Pasadena Funds, managed by Roger Engemann Management Co. Inc., Pasadena, Calif., has launched two more - the Pasadena Global Growth fund and the Pasadena Small & Mid-Cap Growth fund.
Firm officials talked about launching new funds two years ago, but their two existing funds fell on tough times until recently.
According to Morningstar, the Pasadena Growth fund "has been sitting on the sidelines for a few years now." After a strong run from 1988 through 1991, "the fund has barely risen past its average large-cap peer."
But in 1995 the firm, which had emphasized domestic companies with steady earnings growth, began investing in foreign and technology stocks, a move that has been paying off. And the Pasadena Growth fund's core large-cap names like Gillette Co. and Coca-Cola Co. have excelled this year. Pasadena Nifty Fifty, which invests at least 75% of its assets in 50 blue chips, also has rebounded in 1996.
Fidelity asset allocation funds
BOSTON - Fidelity Investments introduced a series of five asset allocation mutual funds, the Freedom Funds. The lifestyle funds are age-weighted, becoming more conservative to meet changing risk profiles of defined contribution plan investors. Participants select the fund with investment horizon closest to their anticipated retirement - 2000, 2010, 2020, 2030. The fifth fund in the series meets the low risk investment requirements of retirees.
The funds will invest in up to 17 of Fidelity's mutual funds. Scott Stewart and Ren Cheng are co-managers and determine asset allocation.