uploads///The SP  and the VIX in YTD

Volatility in 2016: Should You Rethink Your Mutual Fund Strategy?


Feb. 20 2016, Published 11:27 a.m. ET

Volatility: Off the charts

The Chicago Board Options Exchange Volatility Index, or the VIX, a representative of forward-looking volatility, has surged lately. Whereas the index ended 2015 at a reading of 18.2, as of February 11, 2016, it had surged to 28.1. The “fear index,”as the VIX is known, shows the degree to which markets are afraid of recent developments.

The rise in volatility and the fall in stocks has been primarily driven by the movement in crude oil prices (XOM) (MRO) (VLO) as well as worries about China’s economic health. The S&P 500, which declined by 0.7% in 2015, was down by 10.7% on February 12, 2016, from a year ago.

BlackRock, the world’s biggest asset manager, sees US equities as fully valued. In its 2016 investment outlook, the company preferred equities to bonds, but not US ones. They were inclined towards European and Japanese stocks.

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What about US large-cap mutual funds?

Given the circumstances described above, it’s not difficult to see that US large-cap mutual funds had a less-than-pleasant outing in the one-year period ended February 12. However, mutual funds are different from exchange-traded funds, which are largely passive. Non-indexed mutual funds are bottom-up stock pickers, which means that their fund managers believe that even with an industry not doing well, a particular stock or set of stocks from the industry will outperform its peers. This stock picking approach gives mutual funds an opportunity to beat the benchmark.

In this series, we’ll look at 12 of the largest US large-cap funds (TRBCX) (FKGRX) by asset size and see how they fared in 2015 as well as the one-year period up until February 12, 2016. We’ll look at quantitative metrics such as standard deviations, the Sharpe ratio, and the information ratio to see if they’ve beaten the S&P 500 as well as see how their risk-adjusted performance has been and whether the fund manager has been consistent with returns. There are a few surprise performances in store for you. Let’s begin our fund-by-fund analysis with the American Funds AMCAP Fund – Class A (AMCPX).


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