Give me your worst performing funds!

When I trained stock brokers at Paine Webber, I was responsible for organizing lunches that mutual fund wholesalers would throw for our office brokers.  During those lunches (you had to provide free food to get stock brokers to show up)they would talk about their best performing mutual funds, while we wolfed down sandwiches and tried not to appear overtly bored.  Finally in an act of desperation one day, I interrupted the presentation

“Let’s do something different today, ” I suggested.  “Tell us about your worst performing funds.  We’ve been buying your best performing funds and they all seem to turn into duds after we’ve sold them to our clients.  So let’s start out with the worst performing funds and maybe we’ll have better luck with them.”

I said that with a certain sarcasm borne from listening to clients who were bagged by yesterday’s news.  But there is a certain element of market truth to this.  Last year’s winners are seldom this year’s darlings.  There is a certain reversion to the mean in Wall Street as in life.  Just look at last year’s big winning sectors, utility stock and consumer staples dividend payers.  So far this year they are the worst performing sectors, down -2.1% and -.35% respectively vs. 1.89% for the broader index S&P 500.

Granted its very early in the year, but there is no better time to remember this.  And guess, what’s the best performing sector to date?  Last years worst performing sector, financials have already racked up an impressive 3.64%.