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Get Four
|  | MARCH 9, 2004
By Amey Stone Lower-Risk Funds Flourish in February Value portfolios and those focused on defensive sectors performed well amid worries about the recovery, high valuations, and inflation In February, stock-fund investors found that investment strategy was more important than whether you favor small-caps or large-caps. Funds with a value-oriented strategy, emphasizing stocks with low prices, far outperformed their growth-oriented peers. For example, small-cap growth funds were flat on average, while small-cap value funds climbed 2.1%. Large-cap growth funds returned 0.7%, while large-cap value funds gained 1.9%. (For complete results of more than 5,000 funds, see "BW Online's Interactive Mutual Fund Scoreboard".) "Investors pulled back from the more aggressive styles that dominated returns over the past year," says Rosanne Pane, Standard & Poor's Mutual Fund Strategist. "Investors are now focusing on consistent earnings at attractive prices." Overall, in February the S&P 500 did just a bit better than funds. The index climbed 1.39%, while the average diversified equity fund climbed 1.31%, according to data from Standard & Poor's. MOVING TOO SOON? Of the diversified stock funds, the mid-cap value category fared the best, gaining 2.52% in February. CGM Capital Development (LOMCX ) was the top performer in that group, gaining 10.1% in February. The move to mid-caps may signal that investors are becoming less aggressive, says Sam Stovall, S&P's chief investment strategist. "Mid-cap funds tend to have higher growth rates relative to large-cap funds -- but aren't as risky as small-cap funds," he notes. Some of the best performing funds in February invested in sectors like in materials, energy, and consumer staples, as investors started to worry about the potential for inflation. The top-performing fund category was natural resources, up 5.6%. RS Global Natural Resources (RSNRX ), the best in that group, gained 8.8%. Funds that invest in emerging markets -- where a lot of raw materials come from -- were up 4.4%. Precious metals also performed well, gaining 3.3% in February. Stovall believes a move into these defensive sectors may be premature. He expects the current economic expansion to continue and some of the best-performing stocks to be in the consumer discretionary, health care, and technology sectors. However, for February, technology funds were the worst-performing group, dipping 1.9% as investors worried about high valuations. The 12-month return for the tech fund category is 64%. Kinetics Internet Emerging Growth (WWWEX ), which dropped 7.9% in the month, was the tech laggard. Japan funds were the only other stock fund category in the red, down just 0.5%.
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