Mutual Funds May Post Worst Year in 4 Decades

Stock mutual funds could be on track for their worst year in at least 40 years as fresh declines this week have added to already steep losses, according to data released Friday.

The average diversified U.S. stock fund is down 25.7% year to date through Thursday, according to Lipper Inc., which tracks fund performance. If funds close the year at that level, the losses would exceed the 24.9% decline of 1974 and the 22.1% decline of 1973.

Stock prices plunged in 1973-74 after the Arab oil embargo helped trigger a sharp economic downturn in the United States. Lipper tracks fund performance back to 1960.

The most popular fund category, large-stock growth, is down 36.2% since the beginning of the year.

Last year, U.S. diversified equity funds slipped an average of 1.7%, Lipper said. In 1999, the average fund gained 28.3% amid the booming stock market.

Quarter to date, the average diversified stock fund is down 21.6% through Thursday, Lipper said. If that figure holds through the end of the quarter it would be the worst quarterly performance since the second quarter of 1970, when the average fund fell 22%, Lipper said.

Despite this week’s market dive, stock funds apparently were hit by only moderate redemptions from investors, said TrimTabs.com Investment Research of Santa Rosa, Calif., which tracks fund flows. Stock fund redemptions outpaced new cash investments by about $11 billion for the week, TrimTabs estimated.