Mutual funds see sharp dropoffs
| • | Markets devastated in 2001 |
| • | Chart: Lackluster performance for mutual funds |
By Jack Duffy
Bloomberg News Service
NEW YORK — U.S. stock mutual funds had their steepest declines in almost three decades as more than four in every five lost money.
Funds focused on Internet and telecommunications companies plunged 39 percent and those concentrated in utilities such as the bankrupt Enron Corp. tumbled 21 percent, according to Bloomberg data. Growth funds, the most widely held type of investment, slid 17 percent.
The winners were concentrated among those that focused on the smallest listed companies. The $170 million Schroder Ultra Fund gained 74 percent, making it the top performing U.S. stock fund. The $25 million Corbin Small Cap Value Fund returned 53 percent, capturing the No. 2 spot.
"It's nice to be the best in a year that was pretty awful for most of the major indexes," said David Corbin, President of Corbin & Co. and manager of Corbin Small Cap Value Fund.
About 52 percent of U.S. households own $4.04 trillion in mutual funds. Of the 6,248 domestic stock funds tracked by Lipper Inc., 4,987 lost money. The average stock fund fell 11.9 percent.
While the decline was less than the Standard & Poor's 500 Index's nearly 13 percent fall, it was the biggest annual drop since 1974, when the average fund slid 25.1 percent.
Investors added $22.8 billion to small-company stock funds through November, according to Lipper, while withdrawing $28 billion from large-cap funds. Overall, stock funds took in $31.9 billion, less than half the $76.5 billion that went into bonds.
Even with inflows, the value of stocks and bonds held in mutual funds fell by almost $300 billion in the 12 months through November, according to Financial Research Corp., a Boston-based financial services consulting firm.
The biggest actively managed stock funds beat the S&P. Fidelity's Magellan Fund fell 10.7 percent; the Investment Company of America fund slid 3.9 percent and the Washington Mutual Investors fund gained 2.2 percent.
Legg Mason Inc.'s Bill Miller kept the industry's longest winning streak intact. His Legg Mason Value Trust fell 8.3 percent, outperforming the S&P 500 for the 11th straight year.
Out of favor in the late 1990s when big companies like Intel Corp. and Cisco Systems Inc. were in vogue, small company stocks attracted investors seeking shelter from the 66 percent plunge in the Nasdaq Composite Index since its March 2000 peak.
"There are so many opportunities in the smaller-cap sector, you can make money in most environments," said Ira Unschuld, who has managed Schroder Ultra Fund since 1997. Closed to new investors, the fund gained 148 percent last year and 95 percent in 1999. Funds focused on undervalued small companies returned 14 percent on average according to Bloomberg.
Profunds Internet UltraSector Profund, designed to return 150 percent of the daily performance of the Dow Jones U.S. Internet Index, was the biggest loser, sliding 76 percent. Merrill Lynch Focus Twenty Fund, whose manager James McCall quit in November, ended the year with a 69 percent decline.
Schroder Ultra's success
Unschuld says he operates Schroder Ultra more like a hedge fund than a mutual fund, trading rapidly, taking sizeable positions in companies he believes are undervalued and selling others short in a bet they will fall. His biggest position on Oct. 31 was Hollywood Entertainment Corp., the No. 2 U.S. video store chain, whose stock gained 1,285 percent this year.
Unschuld declined to comment on his current picks, saying only that "we're finding lots of opportunities while continuing to hedge our downside."
Corbin's Small Cap Value Fund gained by holding stocks that soared after Sept. 11 and the anthrax attacks that followed.
Video conferencing firm Vtel Corp., the fund's largest holding on Sept. 30, soared 375 percent this year. His No. 2 holding, Titan Corp., which makes communications gear as well as systems that kill anthrax spores, gained 54 percent. The fourth largest holding, Thomas Nelson Inc., the biggest publisher of Bibles, has gained 57 percent.
"A couple of home runs and a few doubles made for a pretty good year," Corbin said. "We haven't had any of the missiles that have sunk growth managers," he said.
For growth stock funds, a year-end surge did little to offset an 18-month rout in Internet and telecommunications stocks.
Money manager Garrett Van Wagoner's five tech-oriented stock funds soared 74 percent in the past three months, but still ended the year down 57 percent on average, according to Bloomberg.
Amerindo Investment Advisors saw its technology, Internet and health and biotech funds gain 46 percent in the past three months and still ended the year down 44 percent.
"The premise on which we invest is still very much intact," said Richard Dukas, an Amerindo spokesman. "The Internet remains the best platform for corporate computing and will continue to be built out. If you believe in technology, part of your portfolio should be in emerging tech," he said.
Investors yanked $17 billion this year from growth stock funds, which target companies selling new products into expanding markets. Value funds, whose managers seek companies whose shares are priced cheaply relative to earnings, took in $55.6 billion.
The $119 million Pimco Emerging Markets Bond Fund was the year's best-performing debt fund, gaining 27 percent. That compares with an average return of 10 percent for all emerging markets debt funds and 4.5 percent for the average bond fund tracked by Bloomberg.
