Markets & Finance

Spitting Image


By James Anderson If you want a thumbnail sketch of how the market has done so far in 2001, just look at June. Last month, small-cap funds bested portfolios anchored in the big splashy names of the S&P 500. That has been the case for most of 2001. And last month, tech reported and projected profit woes sank growth funds, and investors on the hunt for underpriced stocks buoyed value funds. That, too, has been a major theme in 2001's market.

June was a month when slumping corporate profits overpowered the Federal Reserve's latest dose of shock therapy. Try as it might to stop the downturn and arouse a slumbering market, the Fed didn't do much with its latest rate cut -- the sixth in 2001. Of course, doing so was going to be tough, with the likes of Nortel, Nokia, and Juniper Networks, among others, airing bad news about earnings. As a result, stocks as a whole did poorly in June, capping a disappointing first half. The S&P 500 slid 2.4% and ended the first half down 6.7%. While the Nasdaq dodged a spate of profit warnings by tech firms to rise 2.4% in June, it finished the first six months off 12.6%.

If there's a rule of thumb in the 2001 equity markets it's this: the smaller and cheaper the stock, the better it has probably fared. S&P Barra's Smallcap Value Index raced off to a 3.9% gain in June, closing the first half up 11.9%. Smallcap Growth fared nearly as well during the month with a 3.1% total return, but found the first six months a bit rougher, with a 0.6% drop.

Midcap Value's 0.2% rise in June capped a 7.3% total return through the first half. Midcap Growth slipped 0.9% and finished June off 5.4% for the year. S&P Barra's Largecap tallies didn't do so well. Largecap Growth fell 1.3% in June and shaved 11.0% off investors' stockpiles in the first half. Largecap Value dropped 3.3% and closed the first half down 2.5%.

In BusinessWeek's ranking of equity mutual fund categories, smaller proved to be stronger as well. In fact, small-cap value funds finished in second place on our lists, logging a 2.3% return to cap a 13.4% showing up until June 30. Small-cap blend funds, portfolios that mix value and growth investing styles, were another strong performer during the month, averaging a 1.7% total return. The group has risen an average of 11.4% during the first half.

With a boost from declining interest rates, real estate funds flourished in June, with an average 4.9% total return for the month, finishing the first half of 2001 with a 8.6% gain. Worries that a U.S. slowdown could drag down the rest of the world, meanwhile, continued to haunt overseas funds.

BusinessWeek's calculations for international funds showed the entire group off 3.1% in June and down 10.3% for the first half of 2001. Our world fund category, which focuses on funds that invest in the U.S. and abroad, was off 2.7% for the month and stumbled to a -10.7% return in the first six months.

Few regional fund groups did well. Latin America funds managed to stay in place with a 0.5% drop on average for the month, and posted a 3.9% average total return in the first half. At the same time, though Europe funds dropped 3.7% on average, and were off 17.1% for the first half, while Japan funds skidded 5.8% during the month and a full 8.0% during the first six months.

Natural resource and utility funds took the biggest hits during June, falling 10.3% and 6.1% during the month, respectively. Natural Resource funds, which lean heavily on oil and gas shares, finished the first half off 5.5%, while utility funds ended June down an average 9.9% year-to-date as concerns about the nation's energy supplies eased and fuel prices started to drop.

The bond market continued its winning ways in June, with the Lehman Brothers Aggregate Bond index up 0.4% for the month. Most domestic government and muni bond fund categories rose modestly, between 0.3% and 0.8% in the month, and have posted a respectable 1% to 4% total return year-to-date. The top-performing group, emerging-market bond funds, ended June with a 1.7% total return for the month and a 6.9% tally for the first half. After rallying earlier this year, the high-yield bond funds continued to drop, falling an average 2.5% in June and closing the first six months with a 1.7% gain.

A small-cap portfolio finished atop BusinessWeek's equity fund rankings for June. WM Small-Cap Stock A (SREMX) managed an 11.1% total return despite carrying an almost 50% weighting in tech shares. The fund scored big on a few of its tech holdings to beat out the doldrums the rest of sector hasn't been able to shake in 2001.

The fund's largest stake at the end of April was Digimarc,(DMRC), a company that has developed a digital water coding technology for printed products. Digimarc, which constituted 5.3% of the fund's assets is up 63.3% so far this year. Still, even with its impressive 35.8% gain over the three months ending June 30, the volatile fund finished the first half with a total return of 6.3%.

Among BusinessWeek's A-list of high-return, low-risk funds, the top spot went to AIM Global Health Care (GGHCX), which posted a 9.4% climb in June. The fund, which invests in a wide range of companies in the sector, from drug manufacturers to hospitals, ended the first half up 5.4%. A second WM fund, the firm's Growth Fund of the Northwest (CMNWX), was No. 2 on BusinessWeek's A-list roster. Its portfolio, which targets companies based in the Northwest portion of the country, managed a solid 9.3% total return in June and finished the first half of 2001 with a 20.5% tally.

On our bond-fund lists, the Pauze U.S. Government Total Return Bond Fund (PGTRX) led the ranks with a 12.4% total return in June. The fund, which invests in long-term Treasuries, ended the first six months up 12.9%. The top A-list offering for June was Dupree North Carolina Tax Free Short-Medium (NTSMX), a fund that focuses on North Carolina paper. The Dupree fund rose 1.1% in June and was up 3.1% for 2001 at the end of the month. A high-yield muni fund, the American High-Income Muni Bond A (AMHIX), took second place in our A-list rankings with a 1.0% total return in June. Its portfolio of B-rated bonds and somewhat riskier muni paper has turned in a 4.5% total return for the first half of 2001.

The end of June shook up BusinessWeek's equity A-list with 23 new funds added to our elite ranking, and 24 making an exit. Value, mid-cap, and small-cap funds dominated the list of newcomers, while a good number of utility and balanced funds were downgraded. At the same time, June was a quiet period for our A-list bond funds with two rising to our top grouping to replace two on their way out.

Equity Fund A List Upgrades

AIM Global Financial Svs A

AIM Global Health Care A

Bear Stearns S&P Stars A

California Investment S&P MidCap Index

Dreyfus Gr & Val Fds Emerging Leaders

Fidelity Select Electronics

Galaxy Small Cap Value Trust

INVESCO Financial Services Inv

J Hancock Small Cap Value A

Janus Equity-Income

Liberty Acorn Z

Matthew 25

Meyers Pride Value

North Track PSE Tech 100 Idx A

Royce Low Priced Stock

Royce Pennsylvania Mutual Inv

Sentinel Small Company A

Standard & Poor's MidCap 400 Depositary Rcpt

T Rowe Price Mid-Cap Value

Third Avenue Value

Touchstone Emerging Growth A

Turner Small Cap Value

Wachovia Special Values A

Equity Fund A List Downgrades

AXP Utilities Income A

AmSouth Large Cap Equity A

Amer Century Utilities Inv

American Gas Index A

Delaware Trend A

Eaton Vance Growth & Inc. A

Eaton Vance Utilities A

Gabelli Westwood Equity AAA

Gateway

ICAP Discretionary Equity

ICAP Equity

IDEX Janus Balanced B

Investment Company of America A

MFS Total Return A

MSDW Glbl Utilities B

MainStay MAP Equity Instl.

Meeder Advisors Utility Growth A

Mosaic Equity Tr Balanced

Mosaic Equity Tr Investors

State Street Research Strat Income Plus S

Strong American Utilities

Van Kampen Utility A

Vanguard Wellington

Wells Fargo Growth Balanced I

Fixed Income Fund A List Upgrades

Fidelity Spartan NJ Muni Inc.

Mercury Short Term Investment I

Fixed Income Fund A List Downgrades

Alliance Muni Income AZ A

Strong Advisor Short Duration Bond Z

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


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