A Month Most Mutual Funds Flopped


June brought a bitter end to a dismal second quarter for mutual-fund investors. Both the average diversified equity fund and the S&P 500 lost investors 7% that month. For the quarter, the S&P 500 lost 13.4%, and diversified equity funds fared only a bit better, falling 12%. Fund investors had good reason to wonder why more professional fund managers couldn't dodge the market's pitfalls, and many pulled assets out of stock funds.

Even more disheartening for fund investors: The three-year return for the average diversified equity fund was negative, with an average annual loss of 3%. That's quite a bit better than the 9% three-year annual loss suffered by the S&P 500, but it's still troubling for equity-fund investors. A three-year investment in a low-risk, short-term bond fund could have netted at 6% annual gain in that time.

TINY STOCKS, BIG GAINS. Some funds were able to achieve attractive three-year records despite the broad market declines. A-rated funds in BusinessWeek's Mutual Fund Scoreboard that achieved this distinction were mostly those that invest in the tiniest of stocks. Leaders included Bjurman Micro-Cap Growth (BMCFX) and Wasatch Micro Cap (WMICX), each with an annual average return of 34%, and Bridgeway Ultra Small Company (WMICX), up 28% a year in the past three years.

In June, it took an even riskier strategy to earn top returns. The two best-performing funds that month share the same high-risk goal: to return twice the inverse of the Nasdaq 100 Index. Both Rydex Dynamic Venture 100 (RYVNX) and ProFunds UltraShort OTC (USPIX) were up 28% for the month. For the second quarter, they gained 68% and 66%, respectively.

In June, real-estate funds were the only category to rise, notching a 2% gain. International funds had only moderate losses, and financial and small-cap value funds held up relatively well, all with losses in the month of only 4% or 5%.

TARNSIHED. Precious metals funds, which have shined all year as equities fell, actually did among the worst of fund groups, losing 13% in June as the price of gold fell. (The category is still up 53% year-to-date.) Technology and Latin America funds also fell 13% in the month. Communications funds, tarred once again by WorldCom's implosion, fell a brutal 15% in the month.

Only three fund categories scored gains in the second quarter. Precious metals funds were up 12%, real estate funds were up 5%, and Japan funds were up 4%. Losses were steep for the categories you'd expect: Bringing up the rear for the quarter were technology funds, down 28%, communications funds, down 25%, and Latin America funds, down 20%.

Investors in fixed income fared much better in June -- as long as they stayed out of the riskier sectors of convertibles, high yield, and emerging markets. Most bond-fund categories notched a 1% gain and international bond funds even gained 2% in June. That might not sound like much to write home about, but

given the weakness in stock markets, it was reason enough for cheer.

June's A-rated funds:

AIM Global Health Care A

AIM Mid Cap Equity A

AIM Small Cap Growth A

ARK Small Cap Equity Retail A

Advisors Inner Circle FMC Select

Amer Century Equity Inc Inv

Ameristock

Ariel

Ariel Appreciation

Armada Small Cap Value I

Artisan International

Artisan Mid Cap

BNY Hamilton Sm Cap Gr Inv

Babson Shadow Stock

Baron Growth

Berger Small Cap Value Inv

Bjurman Micro Cap Growth

Bridgeway Aggressive Investors I

Bridgeway Ultra Small Company

Bruce

Calamos Growth A

California Investment S&P Mid Cap Index

Clipper

Conseco Equity Y

Dodge & Cox Balanced

Dodge & Cox Stock

Dreyfus Index Fds Midcap Index

Eaton Vance Wldwd Hlth Sciences A

Emerald Select Banking & Finance A

FBR Financial Services A

FBR Small Cap Financial A

FBR Small Cap Value A

FMI Common Stock

FMI Focus

Federated Mid Cap Index

Fenimore Asset Management Tr Value

Fenimore Equity Income

Fidelity Advisor Mid Cap T

Fidelity Export & Multinational

Fidelity Low Priced Stock

Fidelity Mid Cap Stock

Fidelity New Millennium

Fidelity Select Air Transportation

Fidelity Select Brokerage & Investment

Fidelity Select Construction & Housing

Fidelity Select Defense & Aerospace

Fidelity Select Insurance

First American MicroCap Y

First Eagle Fund Of America Y

Franklin Microcap Value

GAMerica Capital A

Gabelli Eqty Fds Small Cap Growth AAA

Gabelli Investor ABC

Galaxy Sm Cp Value Trust

Heartland Select Value

Heartland Value

Hennessy Cornerstone Growth

Hotchkis & Wiley Mid-Cap Value I

ICON Healthcare

ICON Information Technology

ICON Leisure and Consumer

INVESCO Leisure Inv

Janus Adviser Balanced

Janus Adviser Capital Appreciation

Janus Adviser Core Equity

Janus Aspen Cap Appreciation Instl

Janus Aspen Core Equity Instl

Janus Balanced

Janus Core Equity

Julius Baer International Equity A

Kayne Anderson Rudnick Small Cap

Keeley Small Cap Value

Kinetics Internet

Liberty Acorn Z

Liberty Select Value A

Longleaf Partners

Longleaf Partners Small Cap

Lord Abbett Mid Cap Value A

MS Fincl Svcs Tr B

MS Hlth Sciences B

MS Instl Small Co Gr B

Mairs & Power Growth

Marshall Mid Cap Value Inv

Matthew 25

Meridian Growth

Meridian Value

Merrill Lynch Global Small Cap B

Merrill Lynch Healthcare B

Merrill Lynch Master Small Cap Value B

Mosaic Equity Tr Mid Cap

Muhlenkamp

Munder Micro Cap Equity A

Munder Small Cap Value Y

Mutual European Z

NI Numeric Investors Micro Cap

Navellier Perf Mid Cap Growth

Needham Growth

Neuberger Berman Genesis Inv

Oakmark Equity & Income I

Olstein Financial Alert C

One Group Mid Cap Value I

One Group Small Cap Value I

Osterweis

PBHG Large Cap Value

PBHG Mid Cap Value

PBHG Small Cap Value

PIMCO RCM Global Health Care

PIMCO Renaissance A

PIMCO Value C

Parnassus Income Equity Inc

Pioneer Small Cap Value A

Quaker Aggressive Growth A

RS Diversified Growth A

Reserve Private Eqty Small Cap Growth R

Rockland Small Cap Growth

Royce Low Priced Stock

Royce Micro Cap Inv

Royce Opportunity Inv

Royce Pennsylvania Mutual Inv

Royce Total Return

Royce Trust & Giftshares Inv

Salomon Brothers Capital II

Santa Barbara Bender Growth Y

Security Capital US Real Estate

Security Mid Cap Value A

Sentinel Small Company A

Sequoia

Smith Barney Aggressive Growth A

Smith Barney Security & Growth A

Standard & Poor's MidCap 400 Depositary Rcpt

State Street Research Aurora A

State Street Research Mid Cap Value A

Stratton Monthly Dividend REIT

T Rowe Price Capital Appreciation

T Rowe Price Financial Services

T Rowe Price Mid-Cap Value

T Rowe Price Small Cap Value

Thompson Plumb Balanced

Thompson Plumb Growth

Tocqueville Small Cap Value

Touchstone Emerging Growth A

Transamerica Premier Balanced Inv

Transamerica Premier Growth Oppt Inv

Turner Small Cap Value

Tweedy Browne Global Value

Value Line Emerging Opportunities

Value Line Special Situations

Vanguard Capital Opportunity

Vanguard Health Care

Vanguard Wellesley Income

Vontobel US Value

WM West Coast Equity A

Waddell & Reed Adv Science & Technology A

Wasatch Core Growth

Wasatch Micro Cap

Wasatch Small Cap Growth

Wasatch Ultra Growth

Weitz Partners Value

Weitz Value By Amey Stone in New York


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