Lackluster performance from mutual funds amid U.S. stock volatility
By Sree Vidya Bhaktavatsalam Bloomberg News
Published: September 28, 2007
iht.com
BOSTON: Equity mutual funds rose 0.4 percent in the third quarter, the smallest gain in more than a year, and trailed the Standard & Poor's 500 index during the widest swings for U.S. stock prices since 2003.
The biggest gains among U.S. funds were reported by those investing in energy stocks, up 6.4 percent, and large-company growth funds, up 4.5 percent, according to data compiled by Morningstar. The worst performers were funds holding small-company value shares, down 6.5 percent.
The $3.5 billion CGM Focus Fund, which has most of its assets in natural resource stocks, was the top performing actively managed fund in the industry for the quarter, rising 28 percent as of Sept. 25.
Fidelity Investments' $74 billion Contrafund, run by Will Danoff, increased 5.2 percent, and Capital Group's' $186 billion Growth Fund of America gained 2.6 percent. All three invest the biggest portion of their assets in companies with market values of more than $10 billion.
Mutual funds struggled as the benchmark S&P 500 dropped 9.4 percent from July 19 to Aug. 15, the largest decline since March 2003. The index rebounded 8 percent through Sept. 25 after the Federal Reserve reduced the federal funds rate Sept. 18 by a greater-than-expected half a percentage point to 4.75 percent, the first cut in four years.
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U.S. stock prices showed their biggest fluctuations since the first quarter of 2003, based on the volatility index of the Chicago Board Options Exchange, which measures expected changes in stock prices. Equity funds advanced at the slowest pace since the second quarter of 2006, when they fell an average of 6.1 percent amid tumbling commodity prices, Morningstar said.
CGM, a Boston-based fund run by Kenneth Heebner, has more than two-thirds of its assets in energy, commodities and mining companies, three of the 10 best-performing industry groups in the S&P 500. The fund has risen 59 percent this year, driven by Potash Corp. of Saskatchewan, in Saskatoon, Saskatchewan, which is the world's biggest maker of fertilizer, and the oil-services company Schlumberger, based in Houston.
Shares of Potash have more than doubled this year, and Schlumberger has surged 67 percent.
Growth Fund of America has 14 percent of its assets in oil, gas and related service companies. The fund, managed by a team at Capital Group in Los Angeles, has risen 13 percent in 2007. The biggest stocks in the fund are Microsoft, whose shares are little changed this year, and Google, which has risen 24 percent.
Contrafund, the biggest at Fidelity, gained 16 percent this year, led by Google and Apple.
Large-company growth funds beat those investing in shares of small and midsize value companies for the first time since 2000, Morningstar said. Growth funds invest in companies with the fastest-growing earnings, while value funds buy shares perceived as inexpensive relative to financial yardsticks like earnings.
The $19.6 billion Legg Mason Value Trust, overseen by Bill Miller, fell 2.1 percent, reducing its return this year to 2.6 percent. The fund, which broke its 15-year streak of beating the S&P 500 last year, is lagging behind the index by 6 percentage points so far in 2007.
Small-cap value funds, which invest in companies with market capitalizations of less than $3 billion, declined. The worst performer was the $101 million Schneider SmallCap Value Fund, down 19 percent during the quarter because of its investments in mortgage companies.
Natural resource funds rose more than any sector for the second straight quarter as oil prices reached a record price of $83.90 a barrel Sept. 20. The best energy fund was the $2 billion Fidelity Select Energy Service fund, up 16 percent.
Technology funds advanced 5.8 percent to rank second. Juniper Networks, one of the world's biggest makers of equipment for directing Internet traffic, and Amazon.com, the online retailer, rose more than all other companies on the S&P 500 during the quarter.
The $175 million Old Mutual Columbus Circle Technology & Communication Fund, managed by Anthony Rizza at Columbus Circle Advisors in Stamford, Connecticut, rose 13 percent, putting it at the top of the category.
"All kinds of things came together for us in this quarter and we had some fantastic winners," including Apple and Research in Motion, which makes the Blackberry phone, Rizza said. Research in Motion climbed 36 percent, and Apple rose 26 percent. |
