Jaffe Warns of the Misleading Nature of the Recent Bull Market
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Tuesday, March 9, 2010

Jaffe Warns of the Misleading Nature of the Recent Bull Market

Now that the bull market has survived one year since the market bottom on March 9, 2009, Chuck Jaffe worries that fundsters will encourage performance amnesia when it comes to two-year returns in particular. The MarketWatch columnist notes that the average large cap growth fund returned more than 60 percent in the past 12 months, yet the same group averaged an annualized loss of more than six percent over the last two years and barely eked out an average 1.5 percent annual gain over the last five years.

"Fund companies sometimes encourage investor amnesia, and there's little doubt the industry hopes you will linger on the feel-good feelings of the past year rather than the painful past," Jaffe writes. "Plenty of investment managers say that 2008's downturn was so bad and out of character for the market that funds should somehow be given a pass; do that, and you start judging funds on their bull-market returns only."

"A year ago, fund companies were hoping investors would not judge them on their miserable 12-month results as the markets was bottoming out," Jaffe adds. "Now they hope the exact opposite."

Jaffe points to Brandywine Blue as an example. The fund gained 31 percent over the past 12 months, yet it "ranks dead last in its peer group over that period and has been a dullard for the past five years."

Value Line's Gregg Brewer, Tweddell Goldberg Investment Management's Steve Goldberg and Xavier University finance professor David Hyland all weigh in for the article.

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