A losing season
Stock mutual funds slide into reverse
For the first time since the start of the war in Iraq, stock funds lost ground this summer, as oil prices surged, short-term interest rates rose, and earnings slowed.
According to the fund tracker Morningstar, the average domestic stock fund fell about 2.1 percent in the third quarter, ending a streak of five consecutive positive quarters for equity portfolios. Technology funds, which soared in 2003, were "the biggest losers" in the period, says Morningstar fund analyst Karen Wallace. The average tech fund lost more than 11 percent. "Most of the major asset classes either treaded water or were underwater," notes Michael Cuggino, manager of the Permanent Portfolio.
This wasn't the case for Cuggino's $178 million fund, which ranked as one of the top performing domestic equity portfolios in the quarter, with gains of 6.1 percent. But the Permanent Portfolio is an eclectic fund that invests in treasuries, gold, real-estate stocks, and shares of natural resources firms in addition to equities. Such conservative-style funds shone in the third quarter.
Precious-metals funds generated returns of nearly 15 percent. The average natural resources fund soared 11 percent on rising oil prices. And real-estate funds were up around 8 percent on low mortgage rates. Though the Federal Reserve Board raised short-term rates three times this year, yields on 10-year treasury notes fell by around half a percentage point to 4.14 percent in the quarter. Those falling yields helped the average long-term government bond fund gain nearly 4 percent, trouncing stock funds. Still, the fourth quarter may prove different. Ned Davis Research has found that going back to 1900, the Dow Jones industrial average rose 4.4 percent on average in fourth quarters during presidential election years.
Mutual funds table, 3rd quarter
Fund, Quarterly return, 1-year return, 3-year return, Morningstar category rating*, Phone
Diversified Emerging Markets
1. SSgA Emerging Markets 8.91 25.42 25.14 4 800-647-7327
2. Vanguard Emerging Mkts Stock Idx 7.98 26.28 24.86 3 800-662-7447
3. Fidelity Emerging Markets 7.62 22.07 21.98 2 800-343-3548
4. T. Rowe Price Emerging Markets Stock 6.80 25.97 25.54 3 800-638-5660
5. Bernstein Emerging Markets Value 0.36 40.17 33.13 4 800-221-5672
Healthcare
1. PIMCO RCM Biotechnology D -1.09 12.84 4.45 2 800-426-0107
2. Fidelity Select Medical Delivery -1.14 32.64 8.30 3 800-343-3548
3. Fidelity Select Health Care -2.99 9.22 -0.32 4 800-343-3548
4. PIMCO RCM Global Healthcare D -3.08 10.78 2.63 3 800-426-0107
5. Fidelity Select Medical Equip/Systems -3.50 19.91 14.82 5 800-343-3548
Intermediate Bond
1. Vanguard Intermediate-Term Bond Index 4.41 4.11 6.72 5 800-662-7447
2. Fremont Bond 3.66 4.80 6.44 5 800-548-4539
3. Harbor Bond 3.60 4.75 6.89 5 800-422-1050
4. Preferred Fixed Income 3.56 5.33 6.97 4 800-662-4769
5. Summit Bond Fund 3.36 5.05 6.16 4 888-259-7565
Large Growth
1. Marsico Growth 1.33 13.20 7.91 4 888-860-8686
2. Transamerica Premier Focus Inv 1.30 18.36 7.80 4 800-892-7587
3. Parnassus 1.20 2.57 -0.73 3 800-999-3505
4. Strong Blue Chip Inv 1.04 19.79 0.87 3 800-368-1030
5. Marsico Focus 0.68 9.93 6.64 4 888-860-8686
Large Value
1. Copley 4.73 15.91 1.60 2 508-674-8459
2. ING Corporate Leaders Trust 4.70 22.46 9.54 4 800-334-3444
3. Strong Dividend Income 1.59 18.23 0.78 3 800-368-1030
4. AmSouth Value I 1.40 19.04 -0.05 2 800-451-8382
5. Vanguard Value Index 1.24 19.63 5.82 3 800-662-7447
Natural Resources
1. Fidelity Select Energy Service 12.54 40.18 24.27 2 800-343-3548
2. T. Rowe Price New Era 12.21 44.20 19.12 4 800-638-5660
3. Fidelity Select Natural Gas 12.12 50.93 16.87 4 800-343-3548
4. Excelsior Energy & Nat Resources 10.00 43.28 16.70 4 800-446-1012
5. Fidelity Select Energy 9.40 41.62 13.08 3 800-343-3548
Small Growth
1. Safeco Growth Opportunities Inv 0.19 20.75 8.39 4 800-624-5711
2. Kinetics Internet -0.44 4.63 4.39 3 800-930-3828
3. Excelsior Small Cap -1.29 30.28 17.73 2 800-446-1012
4. Neuberger Berman Fasciano Inv -1.35 18.45 12.70 4 800-877-9700
5. Forward Hoover Small Cap Equity -1.69 19.86 13.71 4 800-999-6809
Small Value
1. Vanguard Small-Cap Value Index 1.13 27.01 16.02 2 800-662-7447
2. Legg Mason U.S. Small-Cap Value Prime 0.65 23.88 18.08 2 800-822-5544
3. Northern Small Cap Value 0.41 24.73 19.30 2 800-595-9111
4. Ariel 0.32 23.95 15.90 4 800-292-7435
5. Royce Total Return 0.09 18.89 16.19 4 800-221-4268
Technology
1. Red Oak Technology Select -8.48 3.02 -1.47 1 888-462-5386
2. PIMCO RCM Global Technology -9.03 4.90 10.71 4 800-426-0107
3. PBHG Technology & Communications -9.58 .27 -6.26 1 800-433-0051
4. Fidelity Select Software & Comp -9.78 -0.22 12.75 4 800-343-3548
5. Northern Technology -9.89 4.07 3.40 3 800-595-9111
S&P 500 INDEX -1.87 pct. 13.86 pct. 4.04 pct.
(c) 2004 Morningstar Inc. All Rights Reserved. The mutual fund data: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
This story appears in the October 25, 2004 print edition of U.S. News & World Report.