Fear and Cheer for Fund Investors


By Amey Stone October brought more depressing accusations and some confessions of illegal and improper trading at mutual funds. However, investors couldn't help but be cheered by strong returns at their stock funds. A month filled with terrific third-quarter earnings results and better-than-expected economic news was capped off on Oct. 30 with a government report that showed gross domestic product grew at a blistering 7.2% annual pace from July through September.

U.S. diversified equity funds rose a stellar 6.6% in the month, better than the 5.7% returns of the benchmark Standard & Poor's 500-stock index, according to data from S&P Fund Services.

METALS AND TECH. Funds that invest in small companies continued to set the pace (see BW Online's Interactive Mutual Fund Scoreboard for complete results of more than 9,000 funds). The small-cap growth category climbed 9% in the month. Oberweis Microcap (OBMCX) was the top-performer with an 18.6% return. Small-cap value funds gained an average of 7.5% in October. In contrast, large-cap growth rose 5.9%, and large-cap value increased 5.5%.

Precious metals, which often perform best when the broader market is falling, was nonetheless the month's top-performing sector, gaining 12.2%. Metals stocks benefited as the price of gold and other metals rose sharply on increasing global demand for raw materials. U.S. Global World Precious Minerals (UNWPX), which jumped 22.3%, was a top performer, as was Scudder Gold & Precious Minerals (SCGDX) which climbed 20.1%.

Technology was the other standout sector on news of improving demand for info-tech equipment and services. Tech funds returned an average of 10.3%, and the month's top-performing fund was ProFunds Semiconductor Ultrasector (SMPIX), which surged 32.1%.

MERGER SPARK. Financial funds also outpaced the broader market, rising 7.6% in the October. A good portion of those gains came late in the month, after Bank of America's (BAC) $47 billion bid for FleetBoston Financial (FBF) sparked a rally in the group.

Funds that invest in the Asia (excluding Japan) gained from the tech boom as well as improving economies in the region. They gained 8.8% on average. Diversified emerging-markets funds returned 7.8%. Overall, international equity funds climbed 6.5%.

All equity fund categories enjoyed positive returns, but the sectors with the weakest results were those more cyclically defensive in nature. Utilities gained 2.3%, real estate 2.2%, and health 1.4% on average. Fidelity Select Pharmaceuticals (FPHAX), for example, fell 2%.

REASON TO WORRY. Interest rates were mostly stable in October, but the average bond fund lost 0.2%, mainly because rates of long-term bonds rose (bond prices fall when rates climb). Long government bond funds fell 1.6% in the month, and long-term bond funds that invest in both corporate and Treasury securities fell 1.3%.

The fixed-income funds that fared the best were those most closely tied to equity returns. Convertible-bond funds were the standouts with a 4.2% gain, followed by high-yield funds, which rose 1.9%. The top-performing bond fund was ACM Convertible Securities (CNCVX), with a 7.7% increase. The best high-yield fund was A-rated Pioneer High Yield (TAHYX), which climbed 3.7% in the month.

October was a month when investors had good reason to worry about the integrity of the fund industry. But they were handsomely rewarded if they were willing to stick with their stock funds.

Funds rated A in October:

1st Source Monogram Special Equity

ABN AMRO Veredus Aggressive Growth N

AIM Opportunities I A

AXP Precious Metals A

Aegis Value

Al Frank

Alpine US Real Estate Equity Y

Amer Century Glbl Gold Inv

Amer Century Sm Cap Vl Inv

Amer Century Sm Company Inv

Amer Century Vista Inv

Armada Small Cap Value I

Artisan Mid Cap

Artisan Small Cap Value

BNY Hamilton Sm Cap Gr Inv

Baron Growth

Baron Small Cap

Bjurman Barry Micro Cap Growth

BlackRock International Opportunities Inv A

BlackRock US Opportunities Inv B

Boston Partners Small Cap Value II Invest

Brazos Micro Cap Y

Bridgeway Aggressive Investors 1

Bridgeway Micro Cap Limited

Bridgeway Ultra Small Company

Bridgeway Ultra Small Company Market

Bruce

Buffalo Small Cap

CGM Focus

CGM Realty

CNI Charter RCB Small Cap Value R

CRM Small Cap Value Instl

Calamos Growth A

Cohen & Steers Special Equity

Columbia Acorn Z

Columbia Small Cap Z

Conseco Equity Y

Delafield

Dreyfus Gr & Val Fds Midcap Value

Dreyfus Premier Emerging Markets A

Driehaus Emerging Markets Growth

Eaton Vance Emerging Mkts A

Eaton Vance Wldwd Hlth Sciences A

Emerald Select Banking & Finance A

Evergreen Precious Metals Holdings A

Evergreen Special Equity I

Excelsior Mid Cap Value

FBR Small Cap Financial A

FBR Small Cap Value A

FMC Strategic Value

FMI Focus

Fidelity Canada

Fidelity Japan Small Co

Fidelity Low Priced Stock

Fidelity New Millennium

Fidelity Select Gold

Fidelity Select Medical Systems & Equipment

Fidelity Select Transportation

Fidelity Small Cap Stock

Fifth Third Micro Cap Value Instl

First American Sm Cap Select Y

First American Small Cap Growth Opport Y

First Eagle Gold

First Eagle Overseas A

Franklin Gold & Precious Metals A

Franklin Microcap Value

Fremont US Micro Cap

Fremont US Micro Cap Instl

GMO Asia III

GMO Emerging Countries III

Gabelli Gold

Gabelli Westwood Mighty Mites AAA

Goldman Sachs Small Cap Value A

Hartford Mid Cap A

Heartland Value

Hennessy Cornerstone Growth

Hotchkis & Wiley Mid-Cap Value I

ICM/Isabelle Small Cap Value Inv

ICON Energy

ICON Information Technology

IMS Capital Value

ING Precious Metals

ING Russia A

INVESCO Gold & Precious Metals Inv

Ivy Global Natural Res A

JPMorgan Mid Cap Value I

Janus Mid Cap Value Inv

Janus Small Cap Value Inv

Jennison Natural Resources A

Kinetics Internet

Legg Mason Eq Tr Special Invmnt Prim

Legg Mason Glbl Tr Emerging Mkts Prim

Longleaf Partners International

Lord Abbett Small Cap Value A

MFS International New Discovery A

MTB Small Cap Growth A

Matthews Asian Growth & Income

Matthews China

Matthews Korea

Matthews Pacific Tiger

Meridian Growth

Meridian Value

Merrill Lynch Global Small Cap B

Merrill Lynch Master Small Cap Value B

Morgan Stanley Instl Small Company Gr B

Munder Healthcare B

Munder Micro Cap Equity A

Munder Small Cap Value Y

Mutual European Z

NI Numeric Investors Emerging Growth

Navellier Perf Mid Cap Growth

Needham Growth

Neuberger Berman Genesis Inv

OCM Gold

Oakmark International Small Cap I

Oakmark Select I

Oberweis Emerging Growth

Oberweis Micro Cap

Olstein Financial Alert C

One Group Small Cap Value I

Oppenheimer Developing Markets A

Oppenheimer Gold & Special Minerals A

Osterweis

PBHG Mid Cap

PIMCO PEA Renaissance A

PIMCO RCM Biotechnology D

PIMCO RCM Global Healthcare D

PIMCO RCM Global Small Cap Ist

Perkins Discovery

Perritt Micro Cap Opportunities

Phoenix-Duff & Phelps Real Estate Sec A

Pioneer Small Cap Value A

Quaker Aggressive Growth A

RS Contrarian Value

RS Diversified Growth

RS Global Natural Resources

RS Partners

Reserve Private Eqty Small Cap Growth R

Rockland Small Cap Growth

Royce Low Priced Stock

Royce Micro-Cap Inv

Royce Opportunity Inv

Royce Special Equity

Royce TrustShares Inv

Rydex BioTechnology Inv

Salomon Brothers Small Cap Growth A

Scudder Gold & Precious Metals S

Scudder Micro Cap Invest

Security Mid Cap Value A

Sentinel Small Company A

State Street Research Aurora A

State Street Research Global Resources A

Strong Advisor Small Cap Value Z

Strong Enterprise Inv

T Rowe Price Intl Discovery

T Rowe Price Small Cap Value

TCW Galileo Opportunity N

TCW Galileo Value Opportunities I

Third Avenue Real Estate Value

Third Millennium Russia

Tocqueville Gold

Tocqueville Small Cap Value

Touchstone Emerging Growth A

Turner Micro Cap Growth

Turner Small Cap Value

UBS US Small Cap Growth Y

US Global Accolade Regent Eastern Euro

US Global Inv Global Resources

USAA Precious Metals & Minerals

Undiscovered Managers REIT Instl

Value Line Emerging Opportunities

Vanguard Capital Opportunity

Vanguard Precious Metals

WM West Coast Equity A

Wasatch Core Growth

Wasatch Micro Cap

Wasatch Small Cap Growth

Wasatch Small Cap Value

Wasatch Ultra Growth

Westport Select Cap I

William Blair International Growth N

iShares MSCI Malaysia Index

Stone is a senior writer at BusinessWeek Online and covers mutual funds in her Mutual Funds Maven column


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