The Markets January 29, 2007

Best Performing Funds Fail to Repeat Performance

Advisers who use performance as the sole, or significant, driver in investment selection might want to rethink their strategy because the latest study of fund performance over time from Standard&Poor’s found that very few funds top performing funds managed to consistently repeat top-half or top-quartile performance in 2006.
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Specifically, over five years ending December 31, 2006, only 71 (13.2%) large-cap, 16 (9.9%) mid-cap and 24 (10%) small-cap funds hung onto their top-half ranking over five consecutive 12-month periods. A total of eight (3%) large-cap, two (2.5%) mid-cap and zero small-cap funds maintained a top-quartile ranking over the same period.

“Standard & Poor’s research suggests that screening for top-quartile funds, as the sole basis for an investment decision, is inappropriate,” said Srikant Dash, Index Strategist at Standard & Poor’s, in the news release. “Very few funds repeat a top-quartile performance. Furthermore, Standard & Poor’s research shows that a healthy percentage, and in most cases a majority, of top-quartile funds in the future will most likely come from the ranks of prior period second and third quartiles.”

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Looking at longer term performance, only 17.3% of large-cap offerings with a top-quartile ranking over five years ending December 31, 2001 maintained that ranking over the next five years ending December 31, 2006. Only 10.4% of mid-cap and 17.7% of small-cap funds kept a top-quartile performance over the same period.

Meanwhile, 37% of large-cap, 31.6% of mid-cap and 47.5% of small-cap funds with a top ranking over five years ending December 31, 2001 maintained a top ranking over the next five years ending December 31, 2006.

“The characteristics of top performing funds are similar,” said Rosanne Pane, Mutual Fund Strategist at Standard & Poor’s, in the news release. “On average top funds tend to have more experienced management and lower expenses relative to their peers. They also focus on minimizing losses during down markets.”

More information is at www.standardandpoors.com.

Products January 29, 2007

State Street ETF To Track Infrastructure Industries

State Street Global Advisors will launch Tuesday an exchange-traded fund (ETF) that that tracks an index of developed and emerging country stocks involved in infrastructure industries such as pipelines, transportation services, electricity, water and telecommunications.
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The SPDR FTSE/Macquarie Global Infrastructure 100 ETF will be calculated by global index provider FTSE Group, which calculates the Macquarie Global Infrastructure 100 Index, the underlying benchmark for the new ETF, according to a press release about the product.

“With the launch of this SPDR, we are responding to our clients’ demands for access to stocks that cover infrastructure industries on a global scale,” said Anthony Rochte, senior managing director of State Street Global Advisors, in the release.

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State Street recently launched the SPDR MSCI All Country World Index ex-US ETF on the American Stock Exchange, which includes both developed and emerging markets outside of the U.S. (See New State Street ETF Family Tracks Stocks Outside the US). The firm also came out with two ETFs in mid-November that give investors greater access to the Japanese market (See State Street Unveils Two ETFs).

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