PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
However volatile the stock market has been, mutual funds remain a haven for long-term investors, who'll find some surprising choices there, says Mara Der Hovanesian, markets and investments editor for Business Week, who covers funds for the magazine.
For example, growth funds may be down, but they're not out, in her view, and some may be what brokers like to call "buying opportunities," especially in the small- and mid-cap arenas. Business Week's latest rankings identify Van Wagoner Mid-Cap Growth and Emerging Growth, and Nationwide's Mid-Cap Growth fund, among others.
On the other end of the scale, the worst performer recently was the Jacob Internet Fund. But if you're a contrarian investor, Der Hovanesian says, you might try science and tech funds and telecom-sector funds, which have been beaten up but could rebound in the longer run.
Der Hovanesian made these comments as a guest in a chat jointly presented Oct. 31 by Business Week Online and S&P Personal Wealth on America Online. She was responding to questions from the online audience and from the moderator, BW Online's Jack Dierdorff. Following are excerpts from the chat. A complete transcript of this chat is available from BW Online on AOL, keyword: BW Talk.
Q: Mara, the market weather is looking pretty good at the moment. Have we turned a corner? Or are we bound for another disappointment?
A: I'm sort of an unabashed bull, and I have always felt that once the market regrouped and a lot of this hype and speculative investing calmed down, it would rebound.
Q: So how have the mutual funds been doing? Are you a bull there as well?
A: I think that mutual-fund investing is a great way to get in on the market, and obviously there has been a rotation into more value and defensive sectors of funds. But for long-term investors it's a great place to be. I should add that growth-oriented funds may be down, but I don't think they're out.
Q: If growth funds are down now but not out, would this be a good time to buy?
A: My thinking is yes. But the caveats stand of finding a good performer, and maybe one that's not so concentrated in large-cap stocks -- maybe lower on the cap spectrum.
Q: Is this a good time to go into bond or balanced funds?
A: You have to look at your retirement horizon and tolerance for risk. That said, high-yield bond funds have been good performers, but there's some worry that defaults are on the rise.
Q: Can you tell us who gets the best marks now among growth funds in the BW Scoreboard?
A: Yes. Good third-quarter performers include Van Wagoner Mid-Cap Growth and also their Emerging Growth Fund -- both up over 20%. Nationwide's Mid-Cap Growth fund did quite well, up 18%.
Q: What sectors look best? For example, how about biotech, in connection with Dresdner's fund there -- and also how about Dresdner on the global scene?
A: Believe it or not, if you're a contrarian right now, you'd go for telecom and science-tech. In terms of world equity, just about everything has been beaten up from Europe to the Pacific Rim. The caveat is to stay away from the most speculative, fringe kind of concentrated funds in those sectors. Dresdner happens to be one of the premier funds in the biotech category ... unlike the Internet sector, this has a much less speculative nature to it. I think it's really smart to have a chunk of change in this sector.
Q: How have the index funds been doing in this volatile market? They were much-loved when everything was going up.
A: Horribly! Which hasn't prevented a slew of exchange-traded funds from hitting the market -- though that's a slightly different animal. S&P index funds, for instance, are down almost 7% this year....
Q: What is going to be the best [investing] style and market cap next year?
A: I think on the mid- to lower-cap end of the spectrum. Basically, the large-cap mutual funds are going to replicate closely the indexes that they benchmark against, and I don't think that offers the best way to get a performance edge.
Q: And on style, will value have a comeback, for instance?
A: That's the million-dollar question! It already has, clearly. For instance, large-cap value funds are down far less than their large-cap brethren....
Q: Are tech and Internet funds showing any signs of recovery? Any of them "buying opportunities," in the phrase brokers love to use?
A: Yes, I think so. Tech funds are down, on average, about 10% this year, and if you're a bottom-fisher, that spells opportunity. Again, I'd stay away from pure-play Internet funds for now. Look for funds with a long-term record that are just getting beaten up because the sector is, that are more diversified.
Q: Have there been any recent shifts in performance among the fund families?
A: Yes. Obviously, the growth-heavy investors such as Janus and the value-style investors such as Franklin Resources have each had their own reversals of fortune. Pimco, for instance -- a bond shop -- is doing better than some of Fidelity's growth funds. You shouldn't have all your eggs in one fund family's basket, anyway.
Q: These are times that test a fund manager -- any managers who stand out now?
A: There are no real heroes in this market. The ones who continue to do well, however, in this year's turmoil include people like Kevin Landis of Firsthand Funds and Garrett Van Wagoner of Van Wagoner Funds -- also, the Fidelity Mid-Cap Stock Fund manager, David Felman.
Q: Please select six funds for diversity. How about six that rank high in the BW list?
A: First of all, I think every portfolio should have, despite their performance this year, some type of total stock market index fund, so at the very least you match market performance -- any low-cost fund that tracks the Wilshire 5000, such as Vanguard's Total Stock Market Index. Another way to diversify worldwide without getting hit with overseas turmoil is to invest in a U.S.-based equity fund that buys multinationals. An example on our A-list is Buffalo USA Global Growth.
As I mentioned before, Firsthand has a superior track record in tech investing -- for instance, their Tech Value Fund has a five-year average annual return of 58%, and it is also on our A-list. For value investing, a couple of funds on our A-list include Gabelli Westwood Equity, up 21% (five-year average annual rate). A mid-cap growth fund with an aggressive style is Bridgeway Aggressive Growth, up 42% five-year average -- it's a five-star fund, and it's on our A-list.
As for bond funds, again based on five-year average annual returns, we are highlighting the Alliance North American Government Income B, up 16%; Northern Income Equity, up 15%; and Dreyfus Lifetime Income R, up about 9%.
Q: On sector funds again, what is a good health or drug fund?
A: I will give you a couple of the top-performing ones. The caveat is, again, that past performance is not an indication of future returns. Also, a lot of the best funds can get big and get weighed down by assets -- but here they are: Evergreen Health Care B, up 110% for the year to date; Munder Framlington Health Care B, up 99.7%; a small but very well-performing fund, the Orbitex Health & Biotech Fund, up 85%; and the Kinetics Medical Fund, up 56%. And Vanguard, T. Rowe Price, and Fidelity, among the largest mutual-fund companies, all run health-care investing funds, all up about 50% so far this year.
Q: You've told us about some good performers, Mara. Who gets the lowest scores -- funds one might want to switch out of?
A: Definitely the worst-performing fund so far this year has been the Jacob Internet Fund, which has lost 65%. [Ryan Jacob] previously ran the Kinetics Internet Fund, which last year gained 216%, and 200% the year before -- so investors still can't be too unhappy with that. I might add, Pacific Rim and emerging-markets funds are also in the tank. That doesn't necessarily mean you should get out of those funds, because when you're at the lowest, you could theoretically be in the position for a rebound....
Q: Are small-cap funds looking as good as their mid-cap brethren?
A: In some cases, they're doing even better. For instance, small-cap value funds are up 7.6% so far this year, while mid-cap value funds are up 6.97%.
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
