Stock Funds at Worst Since 1998greenspun.com : LUSENET : Unk's Wild Wild West : One Thread
Saturday March 31 7:55 AM ET
Stock Funds at Worst Since 1998
By Patricia Vowinkel
NEW YORK (Reuters) - Stock funds turned in their worst performance in more than two years in the first quarter as last year's rout in technology stocks spread to the broader market.
That leaves many of the nation's 83 million mutual fund investors looking at two consecutive quarters of losses after enjoying nearly uninterrupted gains over the last decade.
``The last two quarters were two of the most difficult quarters running,'' said Craig Chodash, one of the portfolio managers of J. & W. Seligman's $2.25 billion large and mid-cap growth funds. ``Especially this quarter there was no place to hide,'' he said.
U.S. diversified stock funds fell 14.05 percent through March 29, making it the worst quarter since the summer of 1998, when funds fell 14.74 percent as worries about Russia's financial crisis sent global markets lower.
Stock funds finished last year down 1.67 percent, but most of the losses came in the fourth quarter, which was down 8.21 percent.
The last time stock funds turned in a back-to-back quarterly loss was in the first half of 1994 as the U.S. dollar fell to post-World War II lows and on growing worries about inflation and rising interest rates.
It will be hard for investors to dodge the bullet with every category of stock fund -- from value funds to growth funds to sector funds -- down this quarter.
``It's the first time, really, when you look at almost the whole market where almost every style of fund is under water,'' said Rick Jandrain, chief investment officer for Banc One Investment Advisors, which has $134 billion in assets under management and manages the One Group Mutual Funds. ``People aren't feeling very good about that.''
After the Russian currency crisis in the summer of 1998, for instance, diversified stock funds fell 14.74 percent, but they snapped right back the next quarter to rack up gains of 20.67 percent.
``We've been through it before, but just not for that long,'' said Liam Burke, co-manager of the $2 billion Flag Investors Communications Fund. ``In 1998 with the Russian credit crisis, we went from up 40 percent to up 8 percent in the third quarter,'' he said.
``We snapped back with a vengeance in the last quarter of 1998,'' he said.
This time, the tech-heavy Nasdaq index began to fall apart early last year and ended the year down more than 39 percent. So far this year it's down more than 26 percent.
The Standard & Poor's 500 Index, down 10.14 percent last year, is down more than 13 percent so far this year.
The Dow Industrials, which fell only 6.18 percent in 2000, have begun to catch up with the other indices, losing more than 9 percent so far this year.
``The thing that's different here is that over the last 10 years, most of the hits we've had in the market, the sell-offs, have been fairly quick,'' Jandrain said.
``This one is more protracted. We've had the Nasdaq basically in one direction for a year -- and that we haven't seen for awhile,'' said Jandrain, who leads the team managing One Group's growth funds.
``We've seen that history before, but over the last 10 to 20 years, that hasn't been the pattern,'' he said.
That may have lulled some investors into complacency as they learned to use any downturn as a buying opportunity. This time the strategy hasn't been working.
And this time more investors feel the pain as mutual fund ownership expanded from 5.7 percent of households in 1980 to 47.4 percent of households in 1999.
``This certainly is not as bad as say the 1973-75 period and we certainly haven't had a day like we had in October of '87,'' said William Batcheller, portfolio manager of the $270 million Armada tax-managed equity fund.
``I think the difference here may be that, unlike past bear markets, we've got much broader ownership of stocks by individuals,'' he said. ``So there's just much more awareness of it.''
But the selling may not be over yet.
``I'm not sure we've really seen capitulation, where everybody just throws in the towel and I'm quite certain we have not seen the end of the downward earnings revisions and reduced guidance from companies,'' Batcheller said. ``I think we're going to go through that this quarter and into the spring,'' he said.
``There's a fairly broad-based cleansing going on.''
The big, popular funds like Fidelity Magellan Fund and the Vanguard 500 Index Fund have been taking it on the chin along with the funds that loaded up on technology stocks, like the Janus Fund.
The $91 billion Vanguard 500 Index fund fell 12.83 percent so far this year while the $$86.5 billion Magellan Fund fell 13.36 percent percent. Those losses follow declines of 9.06 percent and 9.29 percent respectively in 2000.
The $34.7 billion Janus Fund, which racked up big returns by investing in technology stocks in the 1990s, fell 18.20 percent in the first quarter after dropping 18.02 percent in the fourth quarter and 14.91 percent for the year.
Of the 25 largest U.S. mutual funds, the only one to show a gain was a bond fund -- PIMCO's Total Return Fund, up 2.71 percent.
Although value funds did better than growth funds, they all ended the quarter in the red.
The worst-performing sectors were the multi-cap growth funds, down 23.95 percent, closely followed by the mid-cap growth funds, down 23.48 percent. Large-cap growth funds ended the quarter down 21.45 percent.
The best performers were the small-cap value funds, down only 0.70 percent, followed by the mid-cap value funds, down 2.66 percent.
Among the sector funds, last year's big winner was among this quarter's biggest losers.
The health and biotechnology funds fell 22.93 percent in the first quarter after posting gains of 54.89 percent in 2000 as biotechnology stocks tumbled and investors moved to take profits in the other big healthcare stocks.
Science & technology funds ended the quarter down 34.50 percent. That comes on top of the 33.92 percent those funds lost in 2000.
Telecommunications funds also continued their downward spiral, dropping 26.52 percent in the first quarter on top of their 35.07 percent loss in 2000.
International funds also provided little shelter in the first quarter, with funds in Europe, Japan and Latin America, down 16.61 percent, 7.30 percent and 5.61 percent respectively.
-- (M@rket.trends), March 31, 2001