- The Washington Times - Sunday, June 27, 2004

NEW YORK (AP) — Mutual funds suffered from the uncertainty that marked Wall Street’s second quarter, with only large-cap funds seeing positive returns as investors moved to stable, blue chip stocks.

According to data released Friday by fund-watcher Lipper Inc., the best returns from U.S. diversified funds came from Standard & Poor’s 500 index objective funds, which had a 1.53 percent return for the quarter, and from large-cap funds, which averaged less than 1 percent. Investors turned to blue chip stocks in the second quarter as the 2003 stock rally fizzled.

The worst performer was small-cap growth funds, which had negative returns of 2.38 percent, as investors abandoned small-cap stocks, the darlings of the 2003 rally, in favor of more conservative investments.

Overall, U.S.-diversified equity funds returned only 0.09 percent for the quarter, according to Lipper, reflecting the sideways movement of the stock market as a whole.

“There was a certain amount of trepidation, let’s say, in the equity markets for the quarter,” said Andrew Clark, a senior research analyst at Lipper. “We saw a flight to quality from the more speculative stocks, the small-caps and technology stocks, though it’s worth noting that the trend has started to reverse itself over the past few weeks.”

In specialty sector funds, telecommunications, science and technology, financial services and utility funds all posted small negative returns, but they were outdone by real estate funds, which had an average negative return of 6 percent, thanks to concerns about the Federal Reserve Board’s interest-rate policies.

Only natural resources funds, with a 4.31 percent return, and health/biotechnology funds, which posted a 0.3 percent return, were in positive territory for the quarter.

International stock funds fared far worse, with gold-oriented international funds leading the way with a 16.64 percent negative return. Asian stock funds also were battered, with Pacific stock funds posting an 11.7 percent negative return, followed by China-region funds with a 10.9 percent negative return.

Global large-cap funds (1.48 percent return), international small- and mid-cap value funds (0.19 percent return), and European-region funds (1.34 percent return) were the only world equity funds to post gains for the quarter.

“The global and the international funds are going to be tied in to the U.S. dollar, and the dollar’s been very choppy,” Mr. Clark said. “It changed week to week, and it happened to catch the end of the quarter on a down week.”

The top-performing individual funds bucked the quarterly trends, showing that a strong fund-management team can help beat the market. Amerindo’s Technology fund was the top returner for the quarter at 22.16 percent, followed by Credit Suisse’s Institutional Small Cap Growth fund with a 14.96 percent return. ProFunds’ Energy fund and Industrial fund posted 12.10 percent and 10.94 percent returns, respectively, and I-Shares’ Dow Transportation fund had an 8.83 percent return.

“This is the whole thing about active versus passive management,” Mr. Clark said. “What we’ve found is that when we have these kind of sideways markets, active management can be very beneficial.”

The worst-performing individual funds were all heavily weighted toward precious metals, which suffered greatly during the quarter. ProFunds’ Precious Metals fund had a negative return of 23.79 percent, while AXP’s Precious Metals A fund had a 20.74 percent negative return. Eaton Vance’s Greater India A fund suffered a 20.29 percent negative return, U.S. Global Investors’ World Precious Mineral fund posted a 19.72 percent negative return, and Rydex Investments’ Precious Metals fund rounded out the top-five worst performers with an 18.98 percent negative return.

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