Markets & Finance

Gold, Real Estate Funds Rally


By James A. Anderson It was indeed a September for mutual-fund shareholders to forget. Yet there were some bright patches. Most bond funds logged gains for the month. Another encouraging sign: Many of the equity funds followed by BusinessWeek logged averages that beat the major stock indices, indicating that portfolio managers earned their money by keeping shareholder losses to a minimum.

Still, there's no avoiding the adjective ugly to describe just how bad it did get. An already sagging stock market was stunned by the September 11 terrorist attacks, and equities recorded their worst weekly performance since the Great Depression when trading resumed on Sept. 17. Come the end of the month, the massive sell-off sent stocks to their steepest quarterly drop since the aftermath of 1987's October crash.

ACROSS THE BOARD. Across the board, equity indices of all sizes and types struggled. The S&P 500 dropped 8.1%, finishing the third quarter with a nasty 14.7% retreat. The Dow fell 11.1% in September, with the drop for the quarter 15.5%. The Nasdaq, already reeling for much of 2001, got another dose of punishment, this time a 17% loss for the month and -30.6% total return for the third quarter.

The damage was all too apparent in BusinessWeek's stock fund categories, although a good number of portfolio managers were able to patch together numbers that were a good deal better than returns put up by the 500 and Nasdaq. Funds investing in U.S. stocks, for instance, dropped an average of 5.4%, a jarring figure that was nevertheless better than the benchmarks.

Worries that the economy had already begun to contract hit growth funds no matter what their focus.Large-cap funds averaged a 5.9% drop, while BusinessWeek's mid- and small-cap groupings reported an average drop of 6.3% and 7.2%, respectively. Value investors were much more fortunate. While large-cap value funds took a 4% hit on average, small-cap portfolios managed a mere 1.6% drop with mid-cap value managers not far behind with a -1.9% total return in September.

OF LITTLE UTILITY. Normally stocked with defensive plays, utility funds didn't protect investors as much as might be expected, backtracking an average 3.5% in the month. Funds investing in pharmaceutical and health-care stocks provided somewhat better shelter, however, with a -1.3% showing.

Communications and technology funds, already beleaguered for much of 2001, took the brunt of investor concerns averaging total returns of -12.1 and -12.9%, respectively.

Concerns that a stumbling U.S. economy might drag down nations around the globe sure didn't help investors with overseas positions. International funds dropped an average of 3% in September. Japan's woes dragged funds focusing on that nation's stocks down an average of 4.9%, while Latin American portfolios followed their neighbor to the north with a 4.4% drop. Europe funds did a bit better, averaging a total return of -1.9% in September.

Two equity groupings did make the black, however. With concerns over war and a worldwide slump mounting, gold bugs rallied precious metal funds to an average 4.7% gain in September. Another store of value - real estate - climbed, with funds investing in properties reporting an average 2.8% total return last month.

STRONG BONDS. Bonds continued a winning 2001. With the Lehman Aggregate index up 1.1% last month, bond funds averaged a 1.3% gain in September. The two top categories among our fixed-income statistics attracted attention as concerns grew about security in the U.S. and Washington's responses to September 11. One, emerging-market bond funds, led our fixed-income groupings with a 3.9% total return. International bond funds took second place with an average 2.6% total return.

The shorts, already flush from the market's slumps this year, profited again in September - and handsomely at that. The fund with the best numbers during the month, Rydex Dynamic Venture (RYVNX), won big on its bet that technology shares would fall, recording a 51% total return when the month was done. The fund's quarter was nothing less than remarkable - a whopping 117%, bringing its year-to-date tally as of Sept. 30 to 94.4%.

Our top equity A-list performer was Vontobel US Value, (VUSVX) which posted a -0.2% total return last month. An old-fashioned value fund straight from the Warren Buffett school of investing, Vontobel has a strong year so far, thanks to insurers such as Markel (MKL) and Cincinnati Financial. Oh, by the way, the fund has roughly 14% of its assets tucked away in the Oracle of Omaha's brainchild, Berkshire Hathaway.

ODD MIX. Comstock Strategy (CPSFX) led our bond fund lists after netting investors a 3.7% total return for September. The fund's success comes from an odd portfolio in which 57% of its assets were in cash and some 39% was planted in long-term Treasuries at mid-year according to the latest numbers available from Morningstar, despite a costly 2.23% expense ratio. To its credit, the Comstock fund had managed a 17.1% total return year-to-date as of Sept. 30.

The top fixed-income A-list performer was Vanguard Short Term Federal (VSGBX), a portfolio comprised of short-duration Treasuries. It managed a 1.7% total return in September and has delivered investors 8.3% in the first three quarters of 2001.

At the end of September's turmoil the turnover on our equity A-list was brisk. A total of 26 funds joined our top-tier ranking, including many safe-haven plays such as balanced, large-cap value, and utility funds. Downgrades included several mid-cap and small-cap stock funds and a few growth portfolios as well. The bond-fund A-list, meanwhile, had less of a shake-up. Seven fixed-income offerings made their way to the A-list, replacing another seven that were shown the door.

Equity A-List Upgrades

Amer Century Utilities Inv

Capital Income Builder A

Century Shares

Country Growth

Delaware RE Inv Tr A

Deutsche Lifecycle Short Range Inv

Eaton Vance Growth & Inc A

Fidelity Advisor Healthcare B

Fifth Third Strategic Income Adv

First American MicroCap Y

GAMerica Capital A

Gabelli Westwood Balanced AAA

ICAP Equity

IDEX Janus Balanced B

MFS Total Return A

MFS Value A

MS Glbl Utilities B

Meeder Advisors Utility Growth A

Mosaic Equity Tr Balanced

Parnassus

Parnassus Income Equity Inc

Sound Shore

T Rowe Price Financial Services

Vanguard Equity Income

Vontobel US Value

Waddell & Reed Adv Asset Strategy A

Equity A-List Downgrades

Alliance Growth & Income B

Atlas Assets Global Growth A

Bear Stearns Large Cap Value A

Calamos Market Neutral A

Dreyfus Gr & Val Fds Emerging Leaders

Fidelity Advisor Mid Cap T

Fidelity Mid Cap Stock

Firstar MicroCap Instl

Keeley Small Cap Value

Liberty Acorn Z

Merrill Lynch Master Small Cap Value B

Muhlenkamp

Oak Value

One Group Mid Cap Value I

RS Diversified Growth A

Royce Pennsylvania Mutual Inv

Sentinel Small Company A

Smith Barney Fundamental Value B

Smith Barney Security & Growth A

Standard & Poor's MidCap 400 Depositary Rcpt

State Street Research Mid Cap Value A

Strong Opportunity Inv

Tocqueville Small Cap Value

Vanguard Capital Opportunity

Weitz Hickory

Fixed Income A-List Upgrades

Dupree KY Tax Free Short-Med

Excelsior Short-Term Govt Sec

Hawaii Intermediate

One Group Short Term Bond I

Payden Global Short Bond R

State Farm Municipal Bond

Thornburg FL Intm Muni A

Fixed Income A-List Downgrades

Dreyfus Inv Grd Bd Fds Short-Term Inc

Fidelity Spartan NJ Muni Inc

Firstar Short Term Bond Market Instl

Firstar Tax Ex Intmed Bond Market Instl

Franklin NY Int Tax Free Income

Strong Short Term Bond Inv

Van Kampen High Yield Muni A

Anderson teaches journalism at the City University of New York


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