Posted on: Saturday, June 30, 2001
Mutual funds regain ground in second quarter
Associated Press
NEW YORK — Despite the overall stock market's malaise, mutual funds made healthy strides in the second quarter, recovering from their dismal performance during the first three months of the year.
But the biggest gains were within funds that specialize in smaller companies and those that invest in what are considered to be safer sectors. This indicates that investors are still nervous about the sluggish economy.
"People are looking for things that are less risky," said Don Cassidy, senior researcher for Lipper Inc., a New York-based firm.
The best-performing fund category was gold, a safe hedge in a bearish market. Funds that own stocks in mining and other gold-oriented companies had a return of 19.1 percent for the quarter, according to Lipper.
Health/biotechnology funds came in second with a return of 14.2 percent. Stocks of drug and health care companies are considered safe because consumers need prescriptions and medical services regardless of how the economy is doing.
Science and technology funds, which include high-tech funds, had a return of 10.6 percent, a turnaround following a disastrous year. They still have a negative return of 27.63 percent for the year to date.
The worst-performing fund sector was utilities, which posted a loss of 4.1 percent and have been vulnerable because of the power crisis in California.
Only seven of Lipper's 42 fund categories posted negative returns in the second quarter, an improvement over the first quarter when all of them posted losses for the first time in 21 years.
Small-cap funds — those which invest in companies with market capitalizations of under $200 million — performed best among U.S. diversified stock funds.
Small-cap growth funds had a return of 14 percent. Small-cap core funds, which invest in companies that offer earnings potential and those that pay dividends, had a return of 12.2 percent.
Analysts said small-cap funds have been lifted by the Federal Reserve's interest rate cuts this year. Smaller companies usually must borrow more money than bigger ones and at higher rates.
Small-caps have more attractive prices now, compared with the late 1990s when large caps were hot.
"If you take the three years prior to the downturn of the market in 2000, the advance in the overall market just got more and more narrow as it got larger-cap oriented. So, we saw a great deal of underperformance in small-cap stocks," said Joe Keating, of Fifth-Third Bancorp.
