Funds Face Bigger Struggle to Beat U.S. Stocks: Chart of the Day

Fund managers have more incentive than usual to push stock prices higher during the second half of the year, according to Thomas J. Lee, JPMorgan Chase & Co.’s chief U.S. equity strategist.

As the CHART OF THE DAY illustrates, only 13 percent of actively managed funds were beating their benchmark index by at least 2 1/2 percentage points as of July 23. The proportion was the lowest at this time of year since at least the mid-1990s, according to data compiled by JPMorgan and Bloomberg.

“Mutual funds are having the worst year we can calculate,” Lee wrote in a July 27 report. Of funds run by stock pickers, 32 percent were at least 2 1/2 points behind their benchmarks. That matched the highest figure since 2003.

Gains in the past two months were largely responsible, he wrote, because many managers had previously shifted into stocks less affected by market swings and missed the latest rally. The Standard & Poor’s 500 Index climbed 8.3 percent from its second- quarter low, set on June 1, through yesterday.

Funds that target the largest companies trailed indexes compiled by Russell Investments by an average of 1.11 points through July 23, the report said. The figure was based on the Russell 1000 Index, with a $5.21 billion median market value, and two variations tied to companies’ growth and value.

All this bodes well for cyclical stocks, or shares of companies most sensitive to the economy, the New York-based Lee wrote. Energy, raw-material, industrial and technology companies are among them, and he recommends holdings in these groups that exceed their weight in market indexes.

To contact the reporter on this story: David Wilson in New York at

To contact the editor responsible for this story: Chris Nagi at

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