Markets & Finance

May Fair


If May wasn't exactly a merry month for investors, it was at least more than fair. Mutual-fund investors certainly had to think so in a month when stock and bond funds put up respectable returns -- despite economic twists and turns that could've roiled the stock and bond markets. Woeful jobless figures were shrugged off. Continuing profit worries plagued stocks large and small. And, not to be outdone, the Federal Reserve chimed in late in the month with its fifth rate cut of 2001.

Still, after a disastrous first quarter for stock-fund holders and a rousing charge by equity markets in April, May was relatively quiet. The S&P 500 finished the month with a 0.7% total return. The Dow rose 1.9%, while a schizophrenic Nasdaq cooled its heels with a slight 0.3 drop in May.

Mid- and small-cap shares fared somewhat better than the S&P 500. S&P's mid-cap 400 index was up 2.3% in May while the firm's small-cap tally finished up 1.9% for the month. The bond markets, meanwhile, continued to turn in a solid, if uneventful, performance, as the Lehman Brothers Aggregate index finished the month up 0.6%.

May left BusinessWeek's equity-fund landscape largely untouched, with a 0.5% total return for the month. Domestic funds did slightly better, with a 1.1% tally, while our international fund category finished down 1.2% during May.

DEFENSE. A closer look at May's results shows that defensive fund groups fared best among the 29 categories BusinessWeek tracks. Thanks to a rally by pharmaceutical stocks, health funds led all equity groups with a 4.6% total return for the month. Inflation worries kept precious-metal funds on their upward run, with a 4.0% climb in May. Financial funds, helped along by the Fed's fifth rate cut of the year, also posted a 4.0% gain.

Smaller-cap funds and funds angling for cheaper value investments tended to outperform large-cap and more aggressive growth categories in BusinessWeek's tallies. Small-cap value funds enjoyed a 4.1% total return on average, mid-cap value funds posted a 3.0% advance in the month, while our large-cap value group finished up 1.8%. Small-cap growth funds, meanwhile were up 1.4% while the mid-cap and large-cap growth groups finished down 0.1% and 0.7% , respectively.

Earnings worries for big tech names such as Cisco continued to hammer technology and communications funds in May. Technology fund holders suffered a 3.8% setback on average; communications funds did worse still with a 5.1% retreat. For 2001, technology funds are off 23.1% while communications funds have done only slightly better with a 19.7% drop so far.

Concerns that an economic slowdown might be creeping up on economies the globe over hurt Foreign funds which fell 2.5% during the month and Europe funds which were down 3.8% in May. So far in 2001 foreign funds are off 10.7%, while Europe fundholders have had to endure a 14.0% drop year-to-date.

GOIN' SOUTH. Firm commodity prices and oil's strong position of late helped funds that invest in Latin America and diversified emerging markets. A strong month for the Venezuelan and Colombian exchanges pushed our Latin America fund category to a 3.9% total return, while diversified emerging markets averaged a 2.6% showing during May. Latin America funds have risen 4.7% year-to-date, while diversified emerging markets funds have provided an average total return of 0.9% in 2001.

Bond funds treated investors to another month of solid returns in almost every category BusinessWeek tracks. The bond-fund universe averaged a 0.8% total return for the month. Taxable bonds had a slight 0.6% gain while tax-frees had a 1.0% gain. Emerging markets bond funds led our fixed- income rankings with a 2.8% climb. Convertible funds trailed the field with a 0.5% drop in May, while most other categories ended the month with total returns of between 0% and 1.0%.

Heiko Thieme's quirky American Heritage Fund (AHERX) took first place in BusinessWeek's equity fund rankings for May. Manager Thieme's portfolio is anchored with a 86% weighting in the British biotech firm Senetek (SNTKY), a stock that has risen 28% year-to-date. The small-cap growth fund finished the month with a 20% total return, matching its performance year-to-date. The Wasatch Micro Cap Fund (WMICX) finished with the best month among our A-list of high-return, low-risk funds. A portfolio steeped in small cap growth stocks in the health sciences industry, the Wasatch fund generated a 8.5% total return in May, and has rewarded investors to a 20.0% gain since Jan. 1. Wasatch Micro Cap is currently closed to new investors.

PILIGRIM'S PROGRESS. May's top fixed-income fund was Pilgrim High Yield II (NAHBX). A portfolio invested in junk bond issues helped the Pilgrim Fund to a 6.1% total return during the month. Year-to-date, the fund has posted a 6.2% gain for investors. The number-one bond fund among BusinessWeek's A-list was a California muni portfolio offered by Vanguard. The Vanguard California Tax Free Institutional Intermediate Tax Exempt Fund (VCAIX) was up 1.3% for the month, and has posted a 1.4% total return for investors so far in 2001.

A relatively placid month saw little turnover on our A-list rosters. Seven newcomers made our equity list to replace five recently downgraded funds. Our fixed-income list welcomed three new funds, while bidding adieu to four.

Equity Fund A List Upgrades

AmSouth Large Cap Equity A

Delaware Trend A

Eaton Vance Growth & Inc A

Fidelity Low Priced Stock

Longleaf Partners

Sequoia

State Street Research Mid Cap Value A

Equity Fund A List Downgrades

Evergreen Utility & Telecomm A

GAMerica Capital A

GMO US Core III

Third Avenue Value

Whitehall Growth Svc

Anderson teaches journalism at the City University of New York. Follow his twice-monthly Sector Scope column, only on BW Online


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