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. Last Updated: 07/27/2016

Funds Log Volatile 3rd Quarter

NEW YORK -- The U.S. mutual fund industry has had its most volatile quarter in 2 1/2 years, as funds investing in the smallest U.S. companies soared more than 20 percent and funds investing in Southeast Asia fell almost 15 percent.


"There was a dramatic difference in performance this quarter depending how the investor invested in funds," said Michael Lipper, president of Lipper Analytical Services Inc., which tracks mutual fund performance. "Most of the time the performance gap isn't so large."


The third quarter was also marked by improved returns for portfolio managers who oversee actively managed U.S. stock funds. The average U.S. stock fund generated higher returns than the Standard & Poor's 500 Index for the first time since early last year, according to Lipper Analytical.


The average U.S. equity fund rose 10.99 percent in the third quarter, as of Sept. 18, compared with the S&P 500's advance of 7.02 percent. So far this year, the average equity fund was up 25.33 percent, compared with an average 13.73 percent gain in the first nine months of last year.


"The quarter was a good one for most fund investors unless you were invested in a Southeast Asian fund," Lipper said.


The worst-performing funds in the third quarter included the Merrill Lynch Emerging Tigers Fund, which fell 33.33 percent, and the Fidelity Emerging Markets Fund, which suffered a decline of 22.54 percent because of large investments which took place in Malaysia.


The region's markets have been in turmoil since July 2, when Thailand's government devalued the baht after spending billions in a futile effort to maintain the currency's link to the U.S. dollar. In subsequent weeks, the governments of the Philippines, Malaysia and Indonesia abandoned similar dollar ties.


It was the worst period for the emerging Asian markets since the first quarter of 1994, which followed a "tremendous bull run" in 1993, said Ian Wilson, editor of Micropal Emerging Market Fund Monitor.


"I wouldn't be surprised to see these markets fall further in the fourth quarter because of concerns about weak currencies and their effects on the local economies," Wilson said.


While the Southeast Asian markets tumbled, the U.S. stocks continued to climb. The third quarter was marked by vast improvement in funds that invest in small companies.


The top performers included the Robertson Stephens Information Age Fund, which rose 32.97 percent, and the Berger New Generation Fund, which advanced 27.34 percent.


"Small stocks are catching up, and they're going to continue to do well because the earnings outlook for most of these companies is strong," said Ben Hock, research director of Boston-based John Hancock Funds LP.


The average "micro cap" fund rose 20.7 percent and the average "small cap" fund advanced 14.5 percent between June 30 and Sept. 18, Lipper Analytical reported.