Posted on: Tuesday, October 2, 2001

September brutal for investors of funds

USA Today

The best news about September: It's behind us.

The average stock mutual fund shed 12.4 percent the four weeks ended Sept. 27, cementing September's reputation as one of the most dangerous months for investors. It was the worst month for stock fund investors since August 1998, when funds fell an average 16.7 percent during the global currency crisis.

The quarter is the worst since 1987, according to Lipper, which tracks the funds. A full 99 percent of all stock funds were in the red for the quarter.

Leading the way into the pit: technology funds, which shed 23.4 percent the past 4 weeks. Tech funds have lost 40.3 percent for the quarter through Thursday, the worst quarter ever. The average tech fund is down a mind-numbing 73.6 percent since the bear market began in March 2000.

Growth funds, which look for companies with hot earnings growth, apparently didn't find any last month. The average small-company growth fund tumbled 17.6 percent, while midcap growth funds fell 16.8 percent. Large-company growth funds lost 11.5 percent.

Going overseas was no help, as international funds fell 12.8 percent as the U.S. market swooned. Smaller countries fared worse: Emerging market funds tumbled 16.2 percent.

Only gold funds eked out a gain, as investors bid up the price of gold bullion after the Sept. 11 attacks. Gold prices often rise on rumors of war because war can destabilize the global monetary system.

Not surprisingly, the funds that fared best are those that bet on a falling market. Rydex Venture 100, for example, gained 54.1 percent the past four weeks. The fund uses futures, options and short sales to bet against the stocks in the Nasdaq 100 stock index. Its goal is to rise 2 percent when the Nasdaq 100 falls 1 percent.

But even the people who run bear funds say they should be used with caution. "Venture 100 is up 250 percent the past 12 months," says Rydex portfolio manager Charles Tennes. "It would be a terrible mistake for people to chase that performance."

One reason: The stock market generally rises more often than it falls. Most people use bear funds to hedge positions they have, or make short-term bets on the stock market.

But there was a bit of good news. Funds scored solid gains the week ended Sept. 28. Leading the pack: Financial services funds, up 6.7 percent, and Europe funds, up 4.9 percent.