Perhaps the month's only heartening outcome was that the average U.S. diversified equity fund, which fell 8.7%, significantly outperformed the S&P 500-stock index, which fell 10.9%. However, for the third quarter, which wrapped up in September, the average U.S. diversified equity fund fell 17.2%, which was about equal to the S&P 500's 17.3% drop.
BEAR NECESSITIES. In what's proving to be par for the course this year, the funds that did best were those that bet stocks would fall. Profunds UltraBear (URPIX
) gained 23.6% in September, and Rydex Dynamic Tempest 500 (RYTPX
) gained 23.5%. Most bear-market funds gained about 10% in the month (see BW's Interactive "Mutual Fund Scoreboard").
Of broader equity-fund categories, only precious-metals funds eked out a positive return in September -- and that was just 0.4%. Int that group, Midas Fund (MIDSX
) stood out with a 6.6% gain. Precious-metals funds also had the best returns for the quarter, but they were still down 4% on average for the past three months. Year-to-date that category is up 46.9%, far outperforming any other fund group this year.
Real estate and health-care funds were relatively good defensive plays in September, down just 3.8% and 4.1% in the month, respectively. That was a bit better than hybrid funds (which invest in both stocks and bonds), which slipped 6%. For the quarter, health, domestic hybrid, and real estate funds each fell 9%, which was quite a bit better than most stock-fund groups.
TREND REVERSED. September saw no real difference in how growth vs. value strategies performed, but small-cap funds, which slid about 7%, did a bit better than mid-cap and large-cap funds, which each fell about 10% on average. For the quarter, this trend was reversed, with mid- and large-cap funds tumbling about 17% while small-cap funds plunged roughly 19%.
International funds generally performed just as badly as their domestic peers, falling 10% for the month of September and 18% for the quarter. But Latin America funds brought up the rear in September, dropping 16.7% in the month as Brazil's economic woes mounted. For the quarter, Latin America funds were 23.9% lower.
Technology funds swooned 14.4% in September on the worsening outlook for information-technology spending. Over the quarter these funds plunged 26%. Year-to-date, tech funds are down a disastrous 50.5%.
HOPE IN BONDS. Bond funds continued to provide investors with their best chance at earning positive returns, gaining 1.3% on average in September and 3.1% in the quarter. Municipal and long-term government bonds had the strongest results among bond-fund categories in September as investors stuck to quality. California tax-free bond funds were up 2.7% in September, and long-term government bond funds rose 2.3%.
The worst performing fixed-income funds were those that invest in convertible securities, which were down 3.1% for September and 8.1% for the quarter. Emerging-markets bond funds were 2.8% lower for the month and 2% for the quarter, and high-yield bond funds slipped 1.1% for the month and 2.9% for the quarter. Stone is an associate editor of BusinessWeek Online and covers the markets as a Street Wise columnist and mutual funds in her Mutual Funds Maven column