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1Q fund winners and losers
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April 1, 1999: 4:24 p.m. ET
Telecoms, media, Japan and Latin America stock funds earn top returns
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NEW YORK (CNNfn) - If you figured technology funds were the biggest winners in the first quarter, here's some news that might surprise you.
Telecommunications and media company funds earned the most in the three months ending Wednesday, with average quarterly returns of 17.28 percent, according to Morningstar, a Chicago fund-tracker.
Technology ranked second, earning 16.68 percent.
"Communications and technology have been locked arm in arm lately," said Russ Kinnel, head of equity fund research at Morningstar. "The line between communications funds and tech funds is being blurred."
What's driving the marriage? In part it's the growth of the Internet, Kinnel said. For example, AT&T (T) hopes its merger with TCI will allow it to become a big Internet player.
And a company like Lucent Technologies (LU), a telecommunications equipment maker involved in wireless service and networking, is performing as well as any big-name tech superstar.
Another surprise is that some laggards from last year -- funds investing in Japan, Asia and Latin America -- came in ahead of large-cap growth-stock funds.
Large-cap growth-stock funds earned an average of 7.92 percent and ranked sixth overall for returns.
Japan stock funds were ranked third, earning 16.06 percent; followed by Latin America stock funds with returns of 10.74 percent and Diversified Pacific/Asia funds taking home an average of 8.74 percent.
Kinnel warned that highly-specialized categories are much more volatile than diversified large-cap growth funds.
Lower returns in healthcare affected large-caps he said.
Kinnel advised investors to stay diversified, because specialized sectors tend to be at either extreme of performance lists.
"You can give yourself whiplash buying the ones that do the best in this quarter," Kinnel said. "You wouldn't want to buy a bunch of narrow funds."
For example, last year emerging-markets funds were off, but Europe funds did well. This year, the opposite is true. Bond funds were flat last year but are doing much better this year.
In Japan funds, investors apparently were encouraged that companies have announced fiscal reforms. But Kinnel said there's a difference between announcements and actually making changes, and Morningstar remains cautious.
At the bottom of the list, small value funds lost the most, down 9.50 percent in the quarter. Next are small blend funds, off 7.31 percent, and funds that invest in Real Estate Investment Trusts (REITs), down 4.66 percent.
The numbers show that small caps haven't had the turnaround analysts keep predicting.
"It's a brutal bear market," Kinnel said. "It's amazing. It's like it's another country compared with large stocks."
But investors will likely regret it if they keep ignoring small caps, he said.
"It's hard to see investors bail out on small companies just because they're not beating the S&P 500," he said. 
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