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| DECEMBER MUTUAL FUND PERFORMANCE
Bonds and Value Funds Gave Investors a Merry Christmas For many mutual-fund investors, a yearend rally by the stock market was too little, too late. Bond funds, meanwhile posted yet another solid month, to cap a year in which they handily outperformed stock portfolios. The month started on a positive note. After watching equities get hit by heavy losses during much of the fall, it was indeed heartening to see them attempt a rebound in early December. Still, while stocks made their way to higher altitudes early in the month, a wave of tax-loss selling sent company shares into a swoon the last week of 2000. The advances in the first weeks were enough to help most stock mutual funds post positive results for the month, but they couldn't erase the damage done by one of the worst equity markets in recent memory. Business Week's calculations show that stock funds enjoyed an average 3.9% total return in December, which provided little consolation considering they were down 3.6% for the year. Bond funds, meanwhile, not only posted a respectable 2.2% for the month, but they closed the year with an average 8.2% total return, well outpacing stock portfolios for the year. MIRROR, MIRROR. In many ways, December's equity market mirrored trading patterns set during the latter half of 2000. In a year when smaller stocks prevailed over the market's mammoths, the Large-Cap Benchmark S&P 500 held its ground with a 0.5% total return during the month, but stumbled to its worst annual finish since the '70s OPEC oil crisis, with a -7.8% tally. By comparison, S&P's Mid-Cap index sailed to a 7.7% return in December, closing out a 17.5% gain for the year. S&P's Small-Cap index did even better, charging to a 12.3% return for the month and ending 2000 with a rousing 11.9% increase. December also helped to reinforce another trend: value investing. A cost-conscious market propelled the S&P Barra Large-Cap Value to a 5.1% return during the month, en route to a 6.0% rise for the year. The Barra Large-Cap Growth Benchmark, meanwhile, slid 4.3%, and closed out 2000 with a dismal -22.1% total return. The same pattern held true for mid- and small-cap stocks. S&P's reading on Mid-Cap Value shares rose 10.2% in December, and finished the year up 27.9%. Mid-Cap Growth had a 5.1% rise for the month and managed a 9.2% total return for the year. Small-Cap Growth raced to a 9.2% uptick, but had a terrible 0.6% total return for 2000. Compare that to the Small-Cap Value index, which climbed 14.1% in December and 20.9% for the year. In fixed income, concerns that the U.S. economy might be headed for a recession continued to buoy the bond market. The Lehman Brothers Aggregate index rose 1.9% in December and ended 2000 with a 11.6% total return, its highest mark since 1997. The Lehman Muni index fared a bit better during the month with a 2.5% return and rewarded investors with with an 11.7% return for the year. One of the month's biggest stories was a drop in the value of the dollar. The news that goods manufactured overseas would soon drop in price in the U.S. market helped jumpstart overseas and foreign stock funds, which had dragged through most of the year. The second strongest equity category during December was Diversified Pacific and Asia funds, which invest across the Far East. The group netted an 11.0% return for the month, although it finished 2000 in the red, -33.9%. Funds in the Pacific/Asia ex-Japan grouping, with a 9.6% return, did nearly as well in December, yet closed the year with a return of -27%. Europe funds got a boost, too, with a 8.9% climb in December, to end 2000 down 8.7%. LET IT SNOW. Health funds, with a 51.5% total return, were the year's strongest. They slid a bit -- 1.0% -- in December, possibly due to profit-taking. A cold, snowy winter in the Midwest and Northeast helped natural-resources funds. The group rose 3.4% in December and finished the year as the second-best equity category, with a 33.7% average total return for 2000. Things went so well for the group, in fact, that 11 of the top 15 equity funds in Business Week's December rankings were from the category. Thanks to rallies in both the bond and stock markets, U.S. balanced funds, as tracked by BusinessWeek's Domestic Hybrid category, led all equity funds during December with a 15.9% total return. But the group still ended the year with a lackluster 1.6% total return. Bonds' and stocks' positive results for the month were also good for convertible bond funds, which picks investments that track both fixed income and equity markets. BusinessWeek data shows the convertible group rose 5.3% in December, the highest figure among bond funds. The month's return was enough to nudge the convertible category into a dead even 0.0% return for the year. During December, emerging markets bonds placed second among BusinessWeek's fixed-income listings with a 4.0% total return, capping a year in which the category averaged 9.0%. For the year, portfolios focusing on long maturities typically fared the best among bond funds. Long government funds, which invest in fixed-income securities issued by the U.S. Treasury Department and other government agencies, finished in first place for 2000 with a 14.1% return. California and New York State Long-Term Municipal funds finished second and third, with total returns of 13.1% and 12.0%, respectively. HIGH ENERGY. The month's top stock fund, Fidelity Select Energy Service, rode Wall Street's rush to profit from high gasoline, heating oil, and natural gas prices. The Fidelity fund, which targets exploratory and drilling companies like Nabors Industries and Baker Hughes, treated investors to a 30.7% return in December and a 50.3% figure for 2000. The second-place finisher for the month was State Street Research Global Resources, another oil- and gas-heavy fund, which posted a 27.3% gain in December and a 84.1% total return in 2000. Third place went to Rydex Energy Services, which ended the month with a 27.1% gain and the year with 41.4%. As was the case in October and November, long-term treasury strip funds from American Century led the BusinessWeek bond fund rankings. American Century Target Maturity 2020 had a return of 16.7% for the month and 48% for 2000. Its stable mate, American Century Target Maturity 2025, returned 11.1% during the month and 42.7% for the year. A 9.6% total return in December earned junk-bond fund MFS High Yield third place in December. But it posted a 0.9% drop during the year. December proved to be a less volatile month than November for Business Week's A list of top-ranked mutual funds. Last month saw 36 new funds added to the equity rankings list and 35 departures, while the bond listings added 14 funds and removed 15. After a relatively quite December, 14 new A-rated funds made our grade, while 9 receded. Newcomers to the equity ranks included a number of value, small-cap and mid-cap funds. Our bond fund A list added 4 funds and dropped 5. By James A. Anderson Changes to the A-List Equity funds rated against all other equity funds UPGRADES Artisan International Davis Financial A Dresdner RCM Global Tech I GAMerica Capital A Liberty Growth & Income B Longleaf Partners Small Cap Lord Abbett Mid Cap Value A MainStay MAP Equity Instl Strong Growth & Income Inv T Rowe Price Health Sciences Van Kampen Growth B Pax World Balanced Waddell & Reed Adv Core Invmnt A Whitehall Growth Svc DOWNGRADES ARK Capital Growth Retail A Citizens Emerging Growth Retail Dreyfus Appreciation Firstar Growth & Income Instl Pax World Pioneer A Vanguard Global Asset Alloc Vanguard LifeStrategy Income Wells Fargo Strategic Income I Taxable funds rated against other taxable funds, and tax-free municipal bond funds rated against other tax-free funds UPGRADES Calamos Convertible A First TN Tax Free I MainStay Instl Short Term Bond Marshall Short Term Income Inv DOWNGRADES Alliance North Am Govt Inc A Firstar Short Term Bond Market Instl Firstar Tx Ex Intm Bd Mkt Instl Homestead Short Term Govt Sec Sit Tax Free Income Interactive Scoreboard BW Mutual-Fund Stories | |||||
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