graphic
graphic  
graphic
Mutual Funds
graphic
Stock funds in 3Q: no place to hide
In the third quarter, it wasn't a question of whether you lost money. It was a question of how much.
October 8, 2002: 6:08 PM EDT
By Martine Costello, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Stock fund investors this summer had no place to run, no place to hide.

Large-cap, small cap. Growth or value. Anywhere you look, the landscape was littered with double-digit losses in the third quarter. Even real estate funds, which had delivered steady positive returns throughout the bear market, finally succumbed to the negative tidal wave, losing nearly 8 percent, according to preliminary Morningstar figures as of Sept. 27.

Bond investors, meanwhile, continued to be among the only people on Wall Street who made money this summer.

"I've been in this business for 30 years and this is the worst market I've seen," said Eric Leo, chief investment officer of Baltimore-based Allied Investment Advisors, which has $10 billion under management. "The summer was pretty brutal."

First, the bad news

The biggest losers in the third quarter were (surprise) tech funds, down nearly 24 percent. Small-cap funds were next in line among the worst hit, with small-cap growth, value and blends all down around 18 percent. (Small value and small blends had been among the top performers in the past two years). Large value funds also took a hit, off 16.8 percent. Excluding tiny funds or short-sellers, not a single fund in any of those categories was in the black.

Stock fund agony
There was no where to hide in the third quarter.
Category Quarter* Year-to-date
Convertibles -7.4% -13.5%
Domestic hybrid -7.7% -12.7%
Specialty-real estate -7.9% 3.3%
Specialty-health -9.3% -30.9%
Specialty-natural resources -14.2% -7.7%
Mid-cap blend -14.6% -21.1%
Large growth -14.6% -29.9%
Specialty-financial -14.8% -15.4%
Large blend -15.1% -25.6%
Mid-cap growth -15.3% -29.1%
Specialty-communications -15.6% -50%
Mid-cap value -15.8% -18.8%
Specialty-utilities -16.3% -29.7%
Large value -16.8% -24.2%
Small blend -18.3% -24.2%
Small value -18.4% -15.6%
Small growth -18.7% -30.9%
Specialty-technology -23.9% -49.9%
* As of Sept. 27.
Source: Morningstar

Large growth performed slightly better, losing 14.7 percent. Two funds bucked the trend: Jundt Opportunity, up 2.8 percent; and Jundt Growth, up 0.9 percent. Jundt Opportunity benefited from drug stock Pharmacia, up nearly 13 percent, while Jundt Growth gained from Auzone, a specialty auto retailer, up 4.5 percent.

Communications funds, which lost an average of 15.6 percent, also had one fund that turned a slight profit: Fidelity Select Multimedia, up 0.6 percent. The fund owns plenty of hard-hit media companies such as Gemstar-TV Guide International, down about 49 percent in the quarter. But another holding, Westwood One, a producer of radio programs, is up nearly 15 percent in the quarter.

International stock funds also came under fire, with world stock funds down 15.4 percent and foreign stock funds off 16 percent. Nothing in either category delivered a profit.

Now, the good news

Bond funds, however, had a banner summer as investors looked for safety in U.S. Treasurys. Long government bond funds in particular soared this summer, gaining an average of 6.8 percent thanks to record-low interest rates and falling yields. (Click here to read more on bonds from CNN/Money's Walter Updegrave.) Among the top performers was American Century Target Maturity 2030, up nearly 23.5 percent in three months. Target maturity funds are most sensitive to interest rates because you don't get any interest payments until they mature years later, according to Morningstar's Scott Berry.

Intermediate-term bond funds, the bread-and-butter for many investors, gained 3.2 percent in the quarter, Morningstar said. Pimco Real Return Bond, with a weighting in 30-year inflation-indexed bonds, delivered the top results in the category, up 7.1 percent.

Tax-free muni bond funds in any variety also performed well, with long-term national muni bond funds up 3.8 percent and short-term muni bond funds up 2 percent.

One of the glaring exceptions to the bond fund fiesta was high yield, down 3.2 percent in the quarter. The funds, which invest in corporate bonds that are below investment grade, have been hit hard this year by a string of accounting scandals. Still, there were winners in the category, such as Invesco High Yield, up 4.6 percent, and Regions Morgan Keegan Select High Income, up 3.5 percent. Funds that avoided telecom and cable bonds fared the best, Berry said.

So what do you do? Dump stocks?

The lopsided returns in the third quarter might tempt investors to chase the latest winners. Indeed, investors have been throwing money into bond funds at a record pace in recent months, as equity funds have continued to perform so poorly.

Bond funds saw record inflows of 28.1 billion in July and 17.4 billion in August, according to the Investment Company Institute, the fund industry trade group. But investors pulled $52.6 billion out of stock funds in July, the largest dollar-amount loss and second-largest percentage exodus in the history of the $6.3 trillion industry. In August, stock fund outflows totaled $2.9 billion.

Big mistake, say financial planners. Many investors were burned back in 1999 when they scrambled into aggressive stock funds and ignored safer value funds and bonds.

"Typically the average investor moves in too late," said Brett Wilder, a certified financial planner from Cincinnati. "The best thing you can do is stay diversified."  Top of page




  More on FUNDS
Is this the end of investing as we know it?
The investing app military families love
BRIC investing is officially dead at Goldman Sachs
  TODAY'S TOP STORIES
7 things to know before the bell
SoftBank and Toyota want driverless cars to change the world
Aston Martin falls 5% in its London IPO




graphic graphic

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.