Mutual Funds Sinking Across Board

January 3, 2003
By Harriet Johnson Brackey, Knight Ridder Newspapers

MIAMI — If you tried to pick the right sectors in the market last year, well, you tried. Bonds ruled. Stocks sank. Almost all stocks, that is.

That made it harder than ever for investors to find corners of the stock market in which to ride out the downturn. This year, the task may be equally tough.

In 2002, it was a case of bad compared to worse. While the overall stock market was down severely, the performance of all but a handful of stock sectors was just as bad or worse.

For example, while the average U.S. diversified stock-market mutual fund went down 22 percent, according to preliminary results through Dec. 26 from mutual-fund research company Lipper, investors who stuck to their science and technology stocks saw them plummet 43 percent. Those who held on to telecom saw them drop more than 41 percent.

Elsewhere, the story's not as bad but much the same.

Last year, large-cap growth funds fell 29 percent, large-cap value funds fell 19 percent, small-cap growth funds fell 30 percent, small-cap value funds fell 9.8 percent, mid-cap growth funds fell 27 percent, and mid-cap value funds fell 13 percent.

Gold and real estate were the exceptions. Real-estate funds gained 4 percent — and gold had a spectacular 63 percent rise.

In an environment fraught with fear of war with Iraq, terrorism at home and an uncertain economy, said Tom Roseen, a research analyst at Lipper, "People are thinking maybe there is some safety in the yellow metal."

"The trick," he said, "is business managers and corporate executives are not confident, so we're not seeing corporate spending growing."

Those with their money in gold remain few. There's only about $3 billion in gold-stock mutual funds, out of a total of $6.6 trillion.

The other contrarian sector was real estate. The clue here: The moment stocks started to suffer, real estate took off.

Real-estate mutual funds have had three very nice years, posting a cumulative return of 12.7 percent, compared with an 11.5 percent decline for the average stock fund in the same period.

Last year, real-estate funds posted a 3.43 percent total return.

People buy real-estate funds for diversification, because they act in a way that is quite different from stocks and bonds, and for the dividends that real-estate investment trusts (REITs) pay.

Cohen & Steers Capital Management, a firm that specializes in REITs, said REITs offered a yield, as of Sept. 30 last year, of 7 percent, compared with 1.42 percent average on today's money-market fund, according to Bankrate.com.

Experts believe the uncertainty to be so large that it's close to impossible to devise a sector strategy for 2003.

For example, the clouds are gathering over real-estate prices and commercial office vacancies, so the outlook for REITs isn't as bullish as it was a year ago.

Or if you want to make a bet on rising energy prices, there's no consensus among Wall Street's market strategists on how long any increases in oil will last, even if war begins in the Middle East.

For 2003, it's unusually difficult to look ahead, said Mari Adam, president of Adam Financial Associates, a personal financial advisory firm in Boca Raton, Fla.

"We have so much hanging over our head in terms of international conflict. That will have a big effect on oil prices," she said.

"A lot of it is: Do we have a war, or do we not have a war? Is the economy improving or not improving? We have never had a situation where all these fundamentals are up in the air at the same time."

http://seattletimes.nwsource.com/html/businesstechnology/134608503_
sectors03.html