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Across My Desk: 2006 Market Performance

It was a whopper of a year for equity fund holders. Here's a sweeping overview about their performance from Lipper. Plus, a historical look at stock and bond returns from Ibbotson, the keeper of those numbers.

According to Lipper:

  • Almost 99% of all equity funds posted positive returns in the fourth quarter; the average equity fund was up 15.47% for the year.

  • World Equity Funds (+11.66% for the quarter) rose to the head of the class for the first time in three quarters.

  • China Region Funds (+61.54%), Latin American Funds (+44.12%), and European Region Funds (+33.65%) shone for the year 2006.

  • Real Estate Funds (+34.08%)--the only equity classification able to claim seven consecutive years of positive performance--posted the best return of all domestic equity funds for the year.

  • Equity Income Funds (+18.45%) posted the strongest return for the year in the USDE macro-classification.

    On the downside, only two of Lipper's equity classifications ended 2006 in the tank----Japanese Funds, off 2.39%, and Dedicated Short-Bias Funds, down 7.22%.

Forget mutual funds for a moment, here's a look at the impact 2006's market returns had on various asset classes from an historic long-term point of view:

According to Ibbotson Associates, a Chicago-based investment research firm, for the last 81 years, beginning in 1926 and through 2006 (these numbers are not adjusted for inflation and assume reinvested dividends):

  • Large-Company Stocks (S&P 500) returned 10.4% per year (unchanged from 2005)

  • Small-Company Stocks (bottom 20% of companies by market cap on the NYSE and companies of similar size on the NASDAQ and AMEX) returned 12.7% per year (compared to 12.6% from 1926 through 2005).

  • Bonds (long-term government) returned 5.4% per year (compared to 5.5% from 1926 through 2005)

  • Cash (30-day T Bill) returned 3.7% per year (unchanged from 2005)

  • Inflation remained 3.0%

Ibbotson sites 2006 returns as follows:

  • Large-Company Stocks returned 15.8%, compared to 4.9% in 2005.

  • Small-Company Stocks returned 16.2%, compared to 5.7% in 2005 (8th year in a row that the index beat large-cap stocks. Last time small stocks had a run that long was the 10-year period from 1974 through 1983)

  • Bonds returned 1.2% (lowest return since 1999), compared to 7.8% in 2005

  • Cash returned 4.8%, compared to 3.0% last year

  • Inflation was 2.0% down from 3.4% last year

In this New Year, may your investment choices be rewarding and your expected returns realistic.

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